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AMERICAN SCIENCE SERIES, BRIEFER COURSE. 



POLITICAL ECONOMY. 






BY ;• .„ 

FRANCIS A^--'WALKER 

AUTHOR OP 

"the wages question," "MONET," "MONEY, TRADE AND INDUSTRY,' 
" LAND AND ITS KENT," ETC. 




V ^ n OGQ /^..*:^< 



NEW YORK 
HENRY HOLT AND COMPANY 

1884 






Copyright, 1884. 

BT 

Henry Holt & Co.--«»;^^ ..^ 



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PREFACE. 



This work has been abridged from the third edition of 
my Manual of Political Economy, published in 1883. 

The object in view has been to present a text-book 
adapted to use in Colleges and Academies where but one 
Term is devoted to the study of Po]itical Economy. 

The work of abridgment has been effected mainly 
through excision, although some structural changes have 
been made, notably in the parts relating to Distribution 
and Consumption. 

To teachers who may have occasion to use this Manual 
with their classes, I venture to suggest a frequent refer- 
ence to my ^ork on Wages, published in 1876, in which 
will be found an extended discussion of many points 
relating to the production and distribution of wealth, 
which it has been necessary to treat here with painful 
conciseness. 



FRAISrCIS A. WALKER. 



Institute of Technology, 
Boston, April 30, 1884. 



CONTENTS. 



PART I. 

Character and Logical Method of Political EcoNOjrr, 



PAGE 



PART II. 

PRODUCTION. 

Chapter I. Land and Natural Agents, - = - - 21 

" II. Labor, - - . = „ . 31 

" III. Capital; Its Origin and Office, . = . 47 

" IV. The Productive Capability op a Community, - 56 



PART III. 

EXCHANGE. 

Chapter I. The Theory of Value, . . . ^ 65 

" II. The Theory op International Exchanges, = 89 

" III. Money and its Value, ... ,97 
" IV. Money AND ITS Value— ((7ow?!mwec?) — 

Debased Coin: Seigniorage, - - 121 

" V. Inconvertible Paper Money, - - - 130 

" VL Bank Money, . . , . 143 

" VII. The Reaction of Exchange upon Production, • 150 



iv CONTENTS. 

PART IV. 

DISTRIBUTION. 

Chapter I. The Parties to the Distribution of Weai^th, - 161 

11. Rent, - 168 

" III. Interest, = .- = .-. 190 

" IV. Profits, - 201 

" V. Wages, ..„.. = =. 316 

" VI. Some Minor Shares in Distribution, - - - 244 

" VII. The Reaction of Distribution upon Production, - 253 



PART V. 

CONSUMPTION. 

Chapter I. Subsistence; Population, .... 263 

" II. The Appearance of New Economic Wants, - = 277 

" III. Certain Views OF the Consumption of Wealth, -' 284 
" IV. Consumption the Dynamics of Wealth; Reaction op 

Consumption upon Production. . » . 300 



PART VI. 

SOME APPLICATIONS OF ECONOMIC PRINCIPLES. 

Chapter I. Usury Laws, ... = = - 307 

" II. The Banking Functions, - = = - - 313 

" III. Industrial Co-operation, o = = = 319 

" IV. Trades-Unions and Strikes, = = = - 324 

" V. The Unearned Increment OF Land, - - • 333 

" VI. Political Monet, -..- = = 340 

" VII. Bi-Metallism, ..-..- 345 

" VIII. Pauperism, ..._ = -= 356 

" IX. The Revenue of the State, - - - = 362 

" X. The Principles of Taxation, . _ = = 368 

" - XI. Protection, vs. Freedom of Production, = - 388 

Index, .«....-.- 405 



^' 



POLITICAL ECONOMY. 



PART I. 

CHARACTER AISTD LOGICAL METHOD OF 
POLITICAL ECONOMY. 

1. What Political Economy is.— Political Economy, 
or Economics, is the name of tliat body of luiowleclge 
whicli relates to wealth. 

Political Economy lias to do with no other sub- 
ject, whatever, than wealth. The economist may 
also be a social philosopher, a moralist, or a states- 
man, just as the mathematician may also be a chem- 
ist or a mechanician ; but not, on that account, 
should the several subjects be confounded. The 
more strictly the several branches of inquiry are 
kept apart, the better it will be for each and for all. 

2. Political Economy does not inculcate Love of 
Wealth.— Because political economy confines itself to 
discovering the laws of wealth, it has by some been 
called, derisively, the Gospel of Mammon. 

While wealth is not the sole interest of mankind, 
perhaps not the highest interest, it is yet of vital 
concern to individuals and to communities. As 
such, it deserves to be studied. JS'ow, if it is to be 
studied at all, it will best be studied by itself. 

But more may be said. Political Economy does 



8 POLITICAL ECONOMY. 

not inculcate love of wealth. It simply inquires 
Ilow that passion, or propensity, in tlie degree in 
which it exists, does, in fact, influence the actions of 
men. Political Economy has no quarrel with pas- 
sions or propensities which may, in a greater or less 
degree, supplant the love of wealth. 

So far from Political Economy ministering to 
greedy it would be easy to show that the study of 
Political Economy has tended, by showing how 
wealth is really best gained and kept, to banish a 
ravening, ferocious greed which seeks to snatch its 
objects of desire by brutal violence, at .whatever 
cost of misery to others, and to replace this by an 
enlightened sense of self-interest, which seeks its 
objects through exchanges that are mutually bene- 
ficial, and which supports social order and interna- 
tional peace as the conditions of general well-being. 

3. What is Wealth ?— Wealth comprises all articles 
of value and nothing else. If any thing have not 
value, it does not belong to this category. It may 
conceivably be better than wealth ; but it certainly 
is other than wealth. It may become a means of ac- 
quiring wealth ; but it is not wealth itself. In the 
language of Prof. N. W. Senior, '' the words wealth 
and value differ as substance and attribute. All 
those things, and those only, which constitute 
wealth, are valuable." 

4. What, then, is Value ?—Yalue is the power which 
an article confers upon its possessor, irrespective of 
legal authority or personal sentiments, of command- 
ing, in exchange for itself, the labor, or the products 
of the labor, of others. Briefly and somewhat ellip- 
tically speaking : Value is power in exchange. 



WEALTH AND VALTTE. 9 

We say : irrespective of legal authority. The 
Emperor of Germany can, by a word, call two mil- 
lions of men from their homes and send them to dis- 
tant lands, to watch, to march, to fight. Yet these 
services are not economic, because they are not 
voluntary. On the other hand, the services of a 
soldier in the British army are economic, as they 
are rendered under the terms of a voluntary enlist- 
ment, the result of a fair and open bargain between 
the crown and the subject. 

We say also : irrespective of personal sentiments. 
The mother hangs over the sick bed, day and night, 
draining her very life blood to save her child. Her 
services are not economic, because they are dictated 
by a purely personal sentiment. On the other hand 
the work of the hired nurse and of the feed j)hysi- 
cian comes fairly within the view of the economist. 

5. We note that exchange implies two exchangers. 
Value is, then, a social phenomenon. 

But exchange implies, also, the capability of de- 
taching from the present possessor the articles to be 
exchanged, and making them over to another. 

Are health, strength, intelligence, skill, wealth? 
Have they value ? 

Not a little of the difficulty which has attended 
the use, in economics, of the word wealth, has arisen 
from attributing value to such properties or possess- 
ions as these, and including them in the sum of the 
wealth of individuals and communities. 

But let us apply the test of our definition. Can 
these i30ssessions or properties be exchanged ? Can 
health, strength, intelligence, skill be detached and 
become the property of another 'i l^o ; they can be 



10 POLITICAL MC0N0M7. 

taken away from one, as by sickness or death. ; but 
they cannot be made over to any one else. The 
gouty millionaire cannot, with all that he has, pur- 
chase the robust health of the laborer by the way- 
side, or buy for his empty-headed son the learning 
or the trained faculties of the humblest scholar. 
Hence, all that which some economists have called 
intellectual capital, and all that which by analog}^ 
might be called physical capital, are to be excluded 
from the category of wealth. These have seemed to 
be things so desirable in themselves, so much to be 
preferred, in any right view of human welfare, that 
excellent writers have not been able to bring them- 
selves to leave them out of the field of economics. 
But Political Economy is the science, not of welfare, 
biit of wealth. 

There may be many things which are better than 
wealth, which are yet not to be called wealth. A 
good name is rather to be chosen than riches, and 
loving favor than silver and gold ; yet a good name is 
not riches, and loving favor is neither silver nor gold. 

6. And it is to be noted that it does not matter 
whether the incapacity to detach and make over a 
possession to another, arises from the nature of 
things, as in the case of personal health and strength, 
skill and intelligence, or from the constraints of law 
or public opinion. In Circassia, a beautiful daugh- 
ter is wealth. In Christian countries, a daughter is 
not wealth, though she is far better than wealth. 
The Proclamation of Emancipation, in the United 
States and in Russia, annihilated a vast mass of 
wealth ; it created what was better than much wealth 
— a body of free men. 



VALUE AND GRATUITY. 11 

But while strengtli, skill and intelligence cannot 
be detached, and transferred in an act of exchange, 
and thus cannot be said to be wealth, within our de- 
finition, the present use of them can be assigned to 
another than the possessor, and hence may become 
the subject of exchange. The rich valetudinarian may 
command the services of the robust laborer, in wait- 
ing on his person ; he may hire the x)oor scholar to be 
tutor to his son. The usufruct of all such qualities 
and endowments, therefore, properly constitutes an 
item of wealth. 

7. Relation of Value to Gratuity.— It will have been 
gathered from what has been said respecting value, 
that wealth and well-being are not synonymous ; 
that much which is essential to the latter is no ele- 
ment of the former ; that wealth may be increased 
at the exjDense of well-being, as in the case of the re- 
duction of free laborers to chattel slavery ; that 
wealth may be diminished temjDorarily by causes 
which minister to the advancement of the commun- 
ity, as in the case of inventions or of ameliorating 
changes in nature which allow costly contrivances 
to be dispensed with. 

We are now called further to notice that there is 
a constant tendency to this diminution of the sum of 
wealth, and even to the annihilation of individual 
items in the schedule of wealth, from age to age. 

8. The tendency which has been noted arises out 
of the progress of mankind in the chemical and me- 
chanical arts, by which ox)erations formerly difficult 
are made easy ; by which materials naturally scarce 
are made plentiful ; by which human necessities 
once urgently felt are wholly obviated, and, finally, 



12 POLITICAL ECONOMY, 

by which tilings once costing labor are made to pro- 
duce themselves spontaneously. ^ 

In fact, however, while, in any community, this 
displacement of value by gratuity is continually in 
progress, the increase of jiopulation and the multi- 
plication and diversification of human wants may be 
operating as steadily and strongly in the other direc- 
tion. The labor that is made free by discoveries and 
inventions is applied to overcome the difficulties 
which withstand the gratification of newly-felt de- 
sires of the community. The hut is pulled down to 
make room for the cottage ; the cottage gives way 
to the mansion ; the mansion to the palace ; the 
rude covering of skins is replaced by the comely gar- 
ment of woven stuffs ; and these, in the progress of 
luxury, by the most splendid fabrics of human skill ; 
and in a thousand forms wealth is created by the 
whole energy of the community, quickened by a 
zeal even greater than that which animated the ex- 
ertions of their rude forefathers to obtain a scanty 
and squalid subsistence. 

9. What is the Distinction between Wealth and Prop- 
erty?— A further distinction, which requires to be 
made, is that between wealth and property. The 
neglect of this distinction has caused great confusion, 
es23ecially in discussions of the principles and 
methods of taxation. 

Indeed, we might say that ''property" is not a 
word with which the political economist has any 
thing to do. It is legal, not economic, in its sig- 
nificance. 

'' The wealth," says Prof. Senior, " which consists 
merely of a right or credit, on the part of A., with a 



THE PREMISES OF ECONOMICS 13 

corresponding duty or debt on the part of B., is not 
considered by the political economist. He deals 
with the things which are the subjects of the right, 
or the credit, not with the claims or liabilities which 
may affect them. In fact, the credit amounts merely 
to this ; that B. has in his hands a part of the prop- 
erty of A." 

10. The Premises of Political Economy.— What are 
the proper premises of Political Economy ? that is, 
what facts and principles should the economist take 
to reason from 1 Are they many or few 1 Shall 
the economist take into account all the facts, mental 
or physical, which influence the phenomena of 
wealth ; or shall he confine himself to certain prin- 
cipal facts 1 

Instead of taking man, for the purposes of econo- 
mic reasoning, precisely as he is found to be, shall 
the economist create, for the purposes of his reason- 
ing, an economic man, assumed to be impelled by 
certain motives in respect to wealth, from whose 
actions men in general, knowing themselves to be 
more or less fully controlled by similar motives, 
may derive instruction ? 

Instead of seeking to extend his knowledge of the 
actual conditions under which wealth is produced by 
man, shall the economist content himself with cer- 
tain leading conditions, such as that food is 
produced without human labor only in small quan- 
tities and precariously ; that the soils of every coun- 
try vary widely in fertility ; and that from no soil 
can the produce be increased indefinitely without a 
more than proportional expenditure of labor and 
capital ? 



14 POLITICAL ECONOMY, 

Shall the economist take account of the various 
endowments in the way of soil and climate, mineral 
resources and water power of different countries ; 
shall he study their institutions and the predomi- 
nant traits of character manifested by their iDeople, 
so far as these appear to influence their actions in 
respect to wealth ; or, shall he, on the other hand, 
disregard all that makes one nation to differ from 
another, caring to learn nothing of any which would 
not hold good of all ? 

11. The best statement known to me of the true 
scope of economic inquiry is that given by Prof. 
Cairnes, from whose lectures I abridge the follow- 
ing paragraphs : 

The desires, passions and propensities which in- 
fluence mankind in the pursuit of wealth are almost 
inflnite. Yet amongst these are some princij)les 
of a marked and paramount character. To possess 
himself of these is the flrst business of the political 
economist. He has then to take account of some 
leading physiological facts connected with human 
nature ; and, lastly, to ascertain the X3rincipal phys- 
ical characteristics of those natural agents of pro- 
duction on which human industry is exercised. 

But it must not be thought that when these cardi- 
nal facts have been ascertained, and their conse- 
quences fully developed, the labors of the political 
economist are at an end. The next step in his in- 
vestigations will be to endeavor to ascertain the 
character of those subordinate causes, whether men- 
tal or physical, political or social, which influence 
human conduct in the pursuit of wealth. 

Thus, the political and social institutions of a 



J 



8G1ENGE OR ART. 15 

country, and, in particular, tlie laws affecting the 
tenure of land, will be included amang such subor- 
dinate agencies. Again, any great discovery in the 
arts of production, such, e. g.^ as the steam engine, 
will be a new fact for the consideration of the politi- 
cal economist. It will be like the discovery of a 
new planet, the attraction of which, ox3erating on all 
the heavenly bodies within the sphere of its influ- 
ence, will cause them more or less to deviate from the 
l^iath which had been previously calculated for them. 

Even moral and religious considerations are to be 
taken account of by the economist precisely in so 
far as they are found, in fact, to affect the conduct 
of men in the pursuit of wealth. 

12. Distinction Between Political Economy as a Sci- 
ence and as an Art.— '' If," says Prof. Senior, " Politi- 
cal Economy is to be treated as a science, it may be 
defined as the science which states the laws regula- 
ting the production and distribution of wealth, so 
far as they depend on the action of the human mind. 
If it be treated as an art, it may be defined as the 
art which points out the institutions and habits most 
conducive to the production and accumulation of 
wealth ; or, if the teacher ventures to take a wider 
view, as the art which points out the institutions 
and habits most conducive to that production, accu- 
mulation and distribution of wealth which is most 
favorable to the happiness of mankind." 

Prof. Senior goes on to remark that in the 18th 
century Political Economy was treated as an art, a 
branch of statesmanship. Even w^ith Adam Smith, 
" the scientific portion of his work is merely an in- 
troduction to that which is practical," 



16 POLITICAL ECONOMY. 

Prof Senior continues : ' ' The English writers who 
have succeeded Adam Smith have generally set out 
by defining political economy as a science, and pro- 
ceeded to treat it as an art. Mr. Ricardo is, how- 
ever, an exception. The modern economists of 
France, Germany, Spain, Italy and America, so far 
as I am acquainted with their works, all treat politi- 
cal economy as an art." 

13. The inveterate disposition, thus noted, to aban- 
don the investigation of principles for the formula- 
tion of precepts, has doubtless retarded greatly the 
X^rogress of political economy. It cannot be too 
strongly insisted on, that the economist, as such, has 
nothing to do with the questions, what men had 
better do ; how nations should be governed ; or what 
regulations should be made for their mutual inter- 
course. His business simjjly is to trace economic 
effects to their causes, leaving it to the philosopher 
of every-day life, to the moralist or the statesman, 
to teach how men and nations should act in view of 
the economic principles so established. 

14. Relation of Political Eeonoiny to other Sciences. — 
Political Economy does not ascertain for itself a 
single one of the facts which form the premises of 
the economist. These are all derived from other 
sciences as data, i. e., things given. From the physi- 
ologist, for instance, is obtained the fact of man's 
need of food to sustain life, from which is deduced 
the economic doctrine of necessary wages ; and 
from the physiologist again, is obtained the fact of 
a strong disposition to carry population beyond the 
limits of decent or comfortable subsistence, from 
which is deduced the much-abused doctrine known 



ECONOMICS AND EQUITY. 17 

as Maltliusianism. From the agricultural chemist is 
obtaiued the fact that, beyoud a certain x)oint, the 
apx)lication of capital and labor to land yields a con- 
tinually diminishing return, from which is deduced 
the whole economic doctrine of Rent. None of 
these facts does the economist ascertain for himself. 
He takes them, as the realized results of other 
sciences, and makes them the premises, the starting 
j)oint, of his own. 

From all sciences, by turns, the economist takes 
all facts which bear upon the one subject, wealth ; 
considers them only so far as they bear thereon; 
and puts them together and builds them ux3 into a 
" body of knowledge " which he calls the Science of 
Wealth, or Political Economy. 

15. Political Economy and Political Equity.— The 
boundary line between ethical and economic inquiry 
is perfectly clear, if one will but regard it. Great 
confusion has, however, been engendered by writers 
on economics wandering off into discussions of 
political equity. The economist, as such, has noth- 
ing to do with the question whether existing institu- 
tions, or laws, or customs, are right or wrong. His 
only concern with them is to ascertain how they do, 
in fact, atiect the production and distribution of 
wealth. 

The French writers, who have, in general, been 
singularly just in their apx)rehension of the char- 
acter and logical method of x3olitical economy, have, 
perha^DS, more than all others, erred on this side. 
They profess to be intent on the solution of eco- 
nomic problems, while directing their efforts to- 
wa^rds the vindication of political arrangements, 



18 POLITICAL ECONOMY. 

16. Sentiment and Political Economy. — Holding rig- 
idly to the same view of the nature and scope of 
economic inquiry, we see that those who allow their 
economic opinions to be in any degree shaped by 
what is called sentiment, are equally wrong with 
those who sneer at any recognition of sentiment by 
the economist. The economist's own sentiments 
should be i^ut completely out of sight ; he has only 
to do with the sentiments of others, and with these 
only so far as they affect the actions of men in 
respect to wealth. 

We shall have occasion to observe that feelings 
of justice, of compassion, of resi^ect, of kindly 
regard, may greatly influence the rents paid in any 
country, by tenants to landlords, or the wages paid 
by employers to workingmen or workingwomen. 
So far as such sentiments produce these effects, they 
require to be recognized as economic forces. 

17. The Obstacles which Political Economy En- 
counters. — It is worth while to note the obstacles 
which the economist encounters in his efforts to 
secure the popular recognition and acceptance of 
the laws of wealth, as he discerns them in his study 
of man and society. 

The first is well expressed by Prof. Cairnes : " Its 
close affinity to the moral sciences brings it con- 
stantly into collision with moral feelings and pre- 
possessions, which cannot fail to make themselves 
felt in the discussion of its principles ; while its 
conclusions, intimately connected as they are with 
the art of government, have a direct and visible 
bearing upon human conduct, in some of the most 
( xciting pursuits of life." Archbishop Whately 



OBSTACLES ENCOUNTERED. 19 

had in view the same obstacles to the popular 
acceptance of economic truth, when he remarlied 
that the demonstrations of Euclid would not have 
commanded universal assent if tliey had been appli- 
cable to the pursuits and fortunes of individuals. 

18. Another of the obstacles referred to is found 
in the fact that political economy has to do with 
affairs so ordinary and familiar that men, in gen- 
eral, feel themselves competent, irresiDective of study 
or of special experience, to form opinions on almost 
every subject which the economist is called to 
discuss. 

Few men are presumx3tuous enough to dispute 
with the chemist or mechanician u]3on points con- 
nected with tlie studies and labors of his life ; but 
almost any man who can read and write feels him- 
self at liberty to form and maintain opinions of his 
own upon trade and money. 

Now, this is not wdiolly of evil. The plain com- 
mon sense of unlettered men has not infrequently 
served as a valuable corrective to economic doctrines 
too finely drawn for the purposes of practical legis- 
lation, perhaps based ujDon a partial and disparag- 
ing view of human nature. But while thus, in the 
application of political economy to the art of states- 
manship, the self-assertion of theuninstrucced mind 
has not been without its advantages, this disiDosi- 
tion has certainly hindered the due development of 
political economy as a science. The economic 
literature of every succeeding year embraces works 
conceived in the true scientific spirit, and works 
exhibiting: the most vulo-ar io-norance of economic 
history and the most flagrant contempt for the con- 



20 POLITICAL WONOMT. 

ditions of economic investigation. It is mucli as if 
astrology were being pursued side by side with 
astronomy, or alchemy with chemistry. 

19. A third obstacle which political economy en- 
counters arises from the use of terms derived from 
the vocabulary of every-day life, such as value, 
exchange, wealth, rent, profits — with some of which 
are associated in the popular mind conceptions in- 
consistent with, or, at times, perhaps, antagonistic 
to, those which are in the view of the writer on 
economics. 

The chemist, the geologist, the botanist, on the 
other hand, invents terms for the classes of objects 
or the classes of phenomena which he is to discuss. 
The reader carries with him into the discussion only 
the idea of the thing which the author has created 
for the purpose ; and, if the writer be clear, and the 
reader be careful, there is no danger of a failure of 
understanding between the two. 

So strongly has this disadvantage pressed upon 
some economic writers, that they have been impelled 
to resort to strange and foreign terms to obviate the 
difficulty. Thus, Archbishop Whately, treating 
political economy as the science of exchange, intro- 
duced the Greek word, Catallactics, to express the 
scope of liis inquiry ; and Prof. Hearn has given to 
his admirable book the name Plutology, to escape 
the vagueness of meaning which he thought he saw 
in the popular use of the word wealth. 

20. The Departments of Political Economy. — All the 
questions of political economy are both conveniently 
and appropriately discussed under four titles : Pro- 
duction, Exchange, Distribution and Consumiotion. 



■ PART 11. 
PEODUCTION 



CHAPTER I. 

Lattd aitd Natural Agents. 

21. What is the Production of Wealth ? — By tllis 
term we signify all those acts and courses through 
which it comes about that an article confers upon 
its possessor the power, irrespective of legal author- 
ity or personal sentiments, to command in exchange 
for itself, the labor, or the products of the labor, of 
others. Briefly a^d somewhat elliptically, we may 
say, the production of wealth means the creation of 
values. 

This, of course, does not imply the creation of 
matter ; it does not, of necessity, imply even a change 
of form in the thing which before had not value but 
now becomes possessed of it. 

22. Modes of Production.— A distinguished German 
professor has classified values, in respect of 
their origin, as time-value, place-value and form- 
value. Thus, a cake of ice, which has no value in 
the winter may acquire value through being kept 
over, into the following summer. The value thus 
created would be time-value. Again, a cake of ice 



22 POLITICAL EGONOMY. 

wMcli hos in summer a certain value in the conn- 
try where it was first formed, say, Maine, would 
have a much higher value in a semi-tropical coun- 
try, where water is seldom frozen at any season 
of the year, say, Louisiana. The transportation of 
the ice to such a country, and its protection from 
the melting heat of the climate, would be a further 
production of wealth. The value thus created would 
be place- value. 

In the creation of form- value, there is the widest 
possible range of operations, mechanical or chemi- 
cal, from that of the agriculturist, by whose in- 
tervention the black earth of the prairie is trans- 
muted into golden grain, to that of the lace-maker, 
whose whole industry is to arrange his gossamer 
into fantastic shapes. However little the material 
may be wrought, and by whatever agencies that little 
may be effected, we say that wealth is produced 
whenever value is added or acquired through any 
act or any process. 

23. The Agents of Production.— The three primary 
agents in the production of wealth are Land, Labor 
and Capital. 

24. Land.- The school of economists in France, 
prior to the revolution, who wer.e known as the 
Physiocrats, insisted upon regarding land as the 
sole source of w^ealth. According to this school, 
of Avhich the physician Quesnay was the founder, 
labor is incapable of creating value except as em- 
ployed upon the soil. Agriculture is, therefore, 
the sole means of increasing the wealth of a 
nation. 

There was this much of truth in the physiocratic 



DIMINISHING RETURNS IN AGRICULTURE. 23 

theory, that the raw material of all manufactures, 
the subject matter of all trade and transportation, 
comes originally from the soil ; and its value cannot 
escape the iniluence of the great comprehensive 
principle to which we give the name, " the law of 
diminishing returns in agriculture," the princixole, 
namely, that after a certain stage of cultivation 
has been reached, the soil fails to yield a proportion- 
ally increased return to new applications of labor 
and capital. 

Since, then, the law of diminishing returns is so 
far-reaching and all-embracing that even the opera- 
tions of trade and manufacture do not escape its 
influence, it requires to be stated here with great 
precision and fullness of illustration. Prof. Cairnes 
has well said, if this principle did not exist, " the 
science of political economy would be as com- 
pletely revolutionized as if human nature itself 
were altered." 

25. The Law of Diminishing Returns in Agriculture. 
— In any given condition of the art of agriculture, 
there is a limit to the amount of labor and of capital 
which can advantageously be employed or expended 
upon a given area. If more labor be emj^loyed, each 
laborer will have to be content with a smaller quan- 
tity of produce at harvest. And in the same way, 
if more capital be expended, each dollar of capital — ■ 
whether in the form of hoes or carts or oxen, will 
make a smaller addition to the crop of the year than 
a dollar expended before the point of diminishing 
returns was reached. 

Let us suppose that ten laborers, with a certain 
outfit of tools and implements, are engaged in cul- 



24 POLITICAL BCONOMT. 

tivating, in common, a tract of land of a hundred 
acres, producing 2,000 bushels of wheat a year, 
being 20 bushels, per acre, and 200 bushels, per 
capita. Now, let it be supposed that two new 
laborers appear and join themselves to this com- 
pany. What will be the crop of that j^ear for the 
united twelve, assuming agricultural conditions 
constant ? Will it be 2,400 bushels, or more, or 
less ? The answer to this question will depend on 
whether the point of diminishing returns had been 
reached with the original ten laborers, or not. If 
not, the crop of the new year might be not merely 
2,400 bushels, but even more, say, 2,500 bushels, 
since, the limit of the chemical capabilities of the 
soil not being reached, the mechanical advantages 
which result from the division of labor, to be ex- 
plained under a subsequent title, would enable the 
twelve to raise more, per man, than the ten had 
done. 

26. But if the point of diminishing returns had 
been reached when the ten were laboring together up- 
on the land, the new crop will fall short, much or 
little, of 2,400 bushels ; and consequently, each of the 
twelve laborers will have to be content with less than 
200 bushels. Let us sujDpose the crop to amount to 
2,280 bushels, each acre producing 22.8 bushels 
against 20 bushels the year before. Each man will, 
then, receive 190 bushels as his share at harvest. 

On the latter assumption, let it be supposed that 
three additional laborers arrive, and are received on 
equal terms into the company. Will the crop 
now be 3,000 bushels, or 200 bushels per man of 
the fifteen? Clearly not. Will it prove to be 



DiMimsHmo BETURirs m agbigultubr 25 



2,850 bnsliels, 28.5 bushels per acre, giving each 
man 190 bushels as his share, as before ? Cer- 
tainly not, if tlie industrial character of the 
laborers and the knowledge of the art of agricul- 
ture undergo no change. If the twelve laborers 
make the 100 acres yield but 22.8 bushels per 
acre, the 15 can not make the same amount of land 
yield 28.5 bushels per acre. The crop will be some- 
thing less than that : say, 27 bushels per acre, 
which would give each man but 180 bushels as his 
share. 

If, again, we suppose five additional laborers to 
join the company, the crop will not be 40 bushels 
per acre, as would be necessary in order to give 
each man 200 bushels a year, which the original ten 
received, or 38 bushels per acre, as would be neces- 
sary in order to give each man 190 bushels a year, 
which the first twelve received ; or even 36 bushels 
per acre; as would be necessary in order to give each 
man 180 bushels a year, which the first fifteen re- 
ceived ; but the crop could not be forced by the labor 
of twenty laborers above, say, 32 bushels per acre, 
which would give each of the laborers 160 bushels a 
year. 



Ko. of labor- 
ers. 


No of bushels per 
acre. 


Total No. bush- 
els on the whole 
tract . 


Each laborer's 
share. 


10 
12 
15 
20 


20 

22.8 

27 

32 


2000 
•2280 
2700 
3200 


200 
190 
180 
160 



27. In like manner, it would be found, that how- 
ever far the accession of new laborers were carried, 
each new arrival would result inevitably in reducing 



S6 POLITICAL mONOMY. 

the quantity of grain wliich each laborer of the en- 
tu^e body could obtain by a year's work. This re- 
duction of the per capita produce would go forward, 
at first slowly and afterwards rapidly, until the re- 
sult might be reached, that, whereas the original 
company of laborers lived comfortably, or even 
luxuriously, on the fruit of their labors, the forty 
or fifty who had come to work on the same lim- 
ited area would be found living wretchedly, perhaps 
reduced to the verge of starvation. 

28. Now, about the universal application of this 
condition to agricultural production there can be no 
intelligent question. There is not an acre of land 
on the face of the earth on which 60 and afterwards 
120 bushels of wheat can be raised by the applica- 
tion, first of twice, and afterwards of four times the 
amount of labor needed to produce 80 bushels. At 
some time in the progressive cultivation of every 
field, sooner or later, according to the state of agri- 
culture, a stage will be reached after which every 
successive increment of the product will be obtained 
only through a more than proportional expenditure 
of labor. And this condition applies, not only to 
the cultivated field, but to grazing lands, to the 
mine, the forest and the sea. It governs the cost of 
producing fish and whale oil ; fuel and timber for 
manufactures ; coal, iron and copper, for the fur- 
nace and the forge ; wool for clothing, and the car- 
casses of cattle and sheep for food. 

29. The Law of Diminishing Returns in its Applica- 
tion to Manufactures.— Such is the law of diminishing 
returns. But while no part of the field of 
production lies beyond the shade of this primary 



DIMINISHING RETURNS IN MANUFACTURES. 27 

condition, various classes of products are affected by 
it in very different degrees, according as they stand 
nearer to, or further from, agriculture or the x)urely 
' ' extractive ' ' industries. 

Thus, every product of iron is, in some measure, 
subject to the influence of this condition, for, if a 
greater and still greater quantity of iron ore is to be 
derived from a given number of known mines, this 
involves mining at a lower and still lower depths, 
which, in turn, involves a greater expenditure of 
labor in hoisting, ventilating, pumping, etc. But 
it is only the iron, as ore, or as an ore product, 
which is subject to this condition. If the iron be 
rendered by successive processes into fine screws, 
knife blades or watch springs, the first cost of the 
material becomes so small, in comparison with tlie 
cost of the labor expended in working and per- 
fecting it, that a very considerable proportional in- 
crease in the cost of raising the ore from the mine 
would have but a very slight effect upon the value 
of the finished product. 

An increase of the difficulty of mining which 
should double the price of pig iron might not affect 
the x)rice of fine scissors by so much as one per cent. 

30. So far, then, as human wants can be met 
through the elaboration of the raw materials taken 
from the soil, there is a constant tendency to a 
greater and still greater satisfaction of those wants, 
through the perfection of mechanical and chemical 
X^rocesses in manufacture. But, after all, the chief 
concern of the masses of the people is with the 
cost of the raw materials of food, clothing and 
shelter. The bulk of the consumption of the work- 



28 POLITICAL ECONOMY. 

ing classes is of coarse forms of agricultural produce, 
very simply prepared. 

31. The Soil, a Fund for the Endowment of the Hu- 
man Race.— Subject always to the condition wliicli has 
been described,, the soil, consisting of rock pulverized 
at one period€r another of the world' s existence, con- 
stitutes the sole* original endowment of the human 
race. The different varieties of oil possess the 
capability of rewarding human labor in very differ- 
ent degrees ; but every kind of decomposed rock 
known to agricultural chemistry, will, if treated 
with due quantities of water, yield vegetables, grains 
or fruits for man's food, fibers for his clothing, tim- 
ber to construct his house, fuel to warm it. 

It is wholly upon this natural endowment that the 
race have lived in the past ; and it is the extent of 
this endowment which is absolutely to determine the 
maximum number which the race can reach, and the 
longest x^eriod of time through which the race can 
survive. 

32. Exhaustion of the Soil.— Those writers who advo- 
cate what is known as the policy of protection, or, 
as they prefer to style it, the principle of national 
economy, have made great use of the fact that the 
soil is subject to exhaustion ; that its productive 
capabilities are, in the strict sense of the word, a 
fund from which so much and no more can be taken. 
Besides the outright destruction of fertility due to 

*It may be thought in speaking thus of the soil as the sole source 
of materials for the sustentatiou of man, we have overlooked the fact 
that the sea is capable of furnishing a vast quantity of food. In effect, 
however, the nutriment which supports these marine forms of life is 
derived from the soil which constitutes the bed of the ocean, or that 
wliich is brought down into it by the streamy. 



EXHA U8TI0N OF THE SOIL. 29 

wanton abnse of natnre, the ordinary nse of the 
soil for the iDur^Doses of human sustentation tends to 
diminish the fund of iDroductive essences from which 
future generations must draw their supplies of food, 
clothing and shelter. "For every fourteen tons of 
fodder carried off from the soil," says Prof. John- 
ston, ''there are carried away tw^o casks of potash, 
one of soda, a carboy of vitriol, a large demijohn of 
phosphoric acid and other essential ingredients." 

But what becomes of the materials thus taken 
away 1 Surely, if the doctrines of modern physical 
science are true, no force can be lost out of nature ; 
consumption must be followed by production in other 
forms ; or, rather, consumption is nothing but the 
production of new forms. 

It is true that no force can be lost out of nature ; 
yet force may be transmuted from forms in which it 
ministers to human wants into forms in which it 
serves no XDurpose useful to man, as for example, 
when your house burns down and goes off into the 
air, in sudden heat and with a great smoke ; or a 
certain amount of force may be so dissipated that 
men can no longer employ it for their advant- 
age. 

33. Free Trade and Exhaustion of the Soil.— It is upon 
this the protectionist bases his chief argument. He 
claims that local markets should be everywhere 
created to prevent what he calls " earth-butchery ;" 
that the tendency to make new countries the maga- 
zines from which older countries draw their supplies 
of raw materials should be checked, and that, thus, 
every considerable community should be driven, 
against the impulses of immediate interestj to fashion 



30 • POLITICAL ECONOMY. 

for its own consumption the materials produced from 
its own soil. 

34. The liability to the exhaustion of the soil, 
through the exportation of its produce,, upon which, 
as we have seen, one of the great arguments for pro- 
tection is based, is a fact proi)erly to be taken into 
account. I believe the protectionist writers gener- 
ally give it vastly more weight than it deserves, 
chiefly through omitting two considerations. First, 
that even the building up of manufacturing and 
commercial towns would not prevent a large i:)art of 
the waste of the ingredients of the soil. In nearly 
all such towns when of considerable size, the excreta 
of men and even of animals, and, also, to a great 
extent, the refuse of kitchens and of manufactures, 
are thrown into the streams, and carried out to sea. 
The utilization of sewage, on any large scale, has 
never yet been made profitable. Some waste of this 
kind seems inseparable from the human occupation 
of the earth. 

35. Secondly, the protectionist's argument over- 
looks the consideration that, in addition to the prog- 
ress of invention, postponing, though it may not 
avert, the exhaustion of the existing soil, a continu- 
ous addition is being made to the soil available for 
the raising of food, through the decomposition of 
rocks and the formation of rockdust (weathering). 
The mountain loses of its substance by the force of 
frost and floods, and the valleys are enriched with 
the material thus worn away. Moreover, the con- 
version of the nitrogen of the atmosphere into 
nitrates (nitrification), is continually going on, for 
the fertilization of the soil, 



CHAPTER II. 
Labor. 

36. The Hunter State.— The second great agent in 
the production of wealth is htiman labor. Up to 
a certain low point, the grosser human wants are 
supplied by the bounty of nature. So long as this 
continues, value does not emerge ; wealth is not pro- 
duced. Man may live like the squirrels or the 
monkeys, from the spontaneous fruits of shrubs and 
trees ; or, like other large and fierce animals, he may 
prey upon the smaller and weaker species, which, 
in their turn, are nourished, without care, by grasses 
or nuts. So long, however, as races of men subsist 
in this fashion, they are doomed to remain few in 
numbers, low in character, subject to occasional visi- 
tations of famine, the victims of ferocious enemies 
among the higher orders of animals, or of internecine 
war in the unceasing struggle for existence. Politi- 
cal economy has no more to do with men in such a 
state than with the monkeys who compete with each 
other for cocoanuts and bananas. 

37. The Pastoral State.— Labor, in the economic 
sense, first clearly appears in the i3astoral state. 
Here men no longer subsist on the bounty of nature, 
or perish miserably and helplessly when that bounty 
fails. They tame the cattle and sheep and goats and 
asses which once ran wild, and train them to be 
easily guided, handled and controlled ; care for their 



32 POLITICAL ECONOMY, 

subsistence, driving them to fresli pastures, digging 
wells or diverting streams to give tliem a constant 
supply of water, even cutting the abundant food of 
summer and curing and storing it against the season 
of scarcity ; protect the animals they have tamed 
against those that still remain savage, and fold or 
house them against severe storms and protracted 
cold; bleed and blister and physic them in sickness ; 
superintend their breeding after their kind, and care 
for the young far beyond the power or the wisdom 
of the dam. By all these forms of labor, men in the 
pastoral condition make that to be wealth which in 
a state of savagery was no wealth. 

38. And of this social condition we note two things : 
First, population increases largely. It requires 
many thousands of acres to support a family of 
hunters ; as many hundreds will support a family of 
shepherds. The animal that in the one condition 
yielded, once for all, a carcass of three or four 
hundred pounds net, now returns, for the little care 
given her, five hundred gallons of milk every year, 
making, if the owner pleases to expend some addi- 
tional labor, three hundred pounds of cheese. 
Another animal that once yielded a carcass of lifty 
pounds, covered with a pound of coarse stiff hair, 
now parts every year with four or five pounds of 
soft flexible wool," susceptible of being wrought 
into forms of the greatest beauty and useful- 
ness. 

Secondly, the subsistence derived by communities 
in the pastoral state is not only more ample, allow- 
ing a tenfold increase of numbers, it is also far more 
secure than in the hunter state. Men are no longer 



THE FACTORS OF LABOR POWER. 33 

subject to be swept by famine, as by a hurricane, 
from tjie face of the earth. 

39. Agriculture.— The next economic state is readi- 
ed in agriculture. Man no k)nger skims the surface 
of the land ; he plows into the depths of the soil 
and brings up the vast productive energies that hiy 
hidden far below the roots of the grass on which the 
cattle were Avont to graze. And now, where hun- 
dreds of acres were required to support a family, as 
many score suffice. Population rapidly increases ; 
man and beast no longer wander to seek their food ; 
the food is brought to them ; tribes cease to shift 
their place from season to season as tlie exigencies 
of pasture demand ; the cottage replaces the tent ; 
new wants are felt, now that men are not obliged to 
carry around with them all that they own ; new and 
varied forms of wealth appear. 

40. Of What Does Labor Power Consist ?— The labor 
power of any community, whether in the pastoral or 
in the agricultural state, or in the higher state 
where manufactures and commerce enter to further 
diversify production and complicate the industrial 
system, is compounded of two factors, that derived 
from the efficiency of. the individual laborer, and 
that deriY^d from what we may call the organization 
of industry, which embraces the joint action of men 
in production, the differentiation of i^roductive pro- 
cesses, the specialization of trades. 

41. The Eflaciency of the Individual Laborer. The 

degree in which the labor of an individual shall be 
efficient in the creation of values, /. e., the produc- 
tion of wealth, depends upon several causes. 

First : his inherited strength, his original endow- 



34 POLITICAL ECONOMY. 

ment of physical force. This endowment varies 
greatly, not only as between individuals of the same 
community, but as between communities, nations 
and races. In the matter of sheer lifting-strength 
alone, the individuals of one race may, on the aver- 
age, surpass those of other races by fifty or one hun- 
dred per cent,; while in the matter of the use of 
that strength, in operations at once difficult and del- 
icate, the range of existing differences is very much 
wider. 

42. Relation of Food to Industrial Efficiency. — A sec- 
ond reason for the higher industrial efficiency of the 
laborers of one class or nation than belongs to those 
of another, is found in the quantity and quality of 
the food consumed by the laborers of the two classes 
or nations, respectively. The human stomach bears 
much the same relation to the whole frame as the 
furnace to the steam engine. In the one, as in the 
other, must all the forces which are to drive the ma- 
chine be generated. In the one, as in the other, 
the force generated will, within certain limits, in- 
crease with the material for combustion suj)plied. 
With more fuel, the engine will do more work. 
With more food, the man will do more work. 

But not proportionally more. To a great extent 
the return made, in force, to the introduction of 
new fuel into the furnace, varies according to a prin- 
ciple which is strongly analogous to that which gov- 
erns the returns made, in crops, to the application 
of new labor to land. Thus, if Ave suppose that, 
with a furnace of a given height of chimney, 3 lbs. 
of coal to the square foot of grate surface, are sup- 
plied, we should have, resulting from the consump- 



nSLATION OF FOOD TO EFFIGIENGT. 35 

tion, a certain amount of force available to do the 
engine's work. But that amount would be small. 
Now suppose that, instead of 3 lbs., 6 are con- 
sumed. Will the efficiency of the engine be 
doubled, merely ? No, the engine will do easily 
three times as much work. If 9 lbs. are used, the 
power will be still further increased, not only posi- 
tively but proportionally, that is, there will not only 
be more power, but more power for each pound of 
coal. If 12 lbs. are consumed, there may be a still 
further addition to the force generated, not only 
positively, but proportionally. 

43. The economy of supplying food to the human 
machine is in a high degree analogous. If, for ex- 
am x^le, a laborer w^ere supplied with only 100 ozs. 
per week, of a certain kind of food, the laboring 
power which woukl be generated by the digestion 
and assimilation of that food would be slight. Af- 
ter a course of such diet, the man would crawl fee- 
bly to his task ; would work with a very slight 
degree of energy when he first started out, and 
would soon become exhausted, even at that rate. 
Were 125 ozs. given to the laborer, he would be 
able to accomplish an amount of work which would 
be not merely one quarter more, but largely in ex- 
cess of it. He would i^erhaps be able to do half 
as much more. Were his subsistence to rise to 
150 ozs. there would be a still further gain. His effi- 
ciency would be to his efficiency, when receiving 
125 ozs., not as 6 to 5, but as 7, or perhaps 8, to 5. 
With 150 ozs., the laborer's diet might be regarded 
as sufficient for comfort, health and a reasonable 
development of muscular strength. Let the amount 



36 POLITICAL ECONOMY. 

Qf food be carried up to 200 ozs. and we should have 
a liberal, generous diet, ample to supply all the 
waste of the tissues, and to keep the fires of the 
body burning bi'iskly, generating force enough to 
allow the laborer to put forth great muscular ex- 
ertions thro.ugh long periods of time, and to reach 
perhaps the highest degree of efficiency. 

Up to a certain limit, then, with food as with 
fuel, the true economy of consumption is found in 
increasing the sui:)]3ly. Niggardliness is waste, and 
waste of the worst sort. But, just as there is a 
maximum limit with the fuel, so there is with 
food. After that limit is reached, the increase of 
food does not imply a proportional increase of 
force, if, indeed, any increase at all ; and after a 
certain still higher point is reached, the increase of 
food brings mischief. 

44. Under-fed Laborers. — The consideration here 
presented is of great importance in explaining the 
varying efficiency of labor. Probably the inhabi- 
tants of the United States constitute the only large 
population in the world who are thoroughly well- 
nourished ; that is, who have enough of wholesome 
food to secure the greatest economy of consump- 
tion. 

"Many a French factory hand," writes Lord 
Brabazon, " never has anything better for his break- 
fast than a large slice of common sour bread, 
rubbed over with an onion, so as to give it a flavor." 
" Meat," says a careful observer, "is rarely tasted 
by the working classes in Holland. It forms no 
part of the bill of fare, either for the manor his fam- 
ily." Of the laborers of Belgium, an official report 



SANITARY CONDITIONS OF LABOR. 37 

states: "Very many have for their entire subsist- 
ence but potatoes, with a little grease, brown or 
black bread, often bad ; and for their drink a tinc- 
ture of chicory." "To-day in the west of Eng- 
land," says Prof. Fawcett, "it is impossible for an 
agricultural laborer to eat meat more than once a 
week." 

Now, as to the want of true economy in thus re- 
ducing the consumption of food among the working- 
classes there cannot be a moment's question. The 
case may perhaps be best put by saying that if cat- 
tle were not kejjt better nourished than are the ma- 
jority of laborers of the world, it would be better to 
do without them entirely. Barely to keep them 
alive would require a large expenditure of food ; and 
to give them, in addition to this, only enough to 
secure a low grade of muscular strength and activ- 
ity, would not make them worth their keep. 

45. Influence of Sanitary Conditions on the Eificiency 
of Labor. — A third reason for the higher industrial 
efficiency of the laborers of one class or nation than 
of another is found in the differing sanitary condi- 
tions, especially those which concern the quality of 
the air. Human beings confined in small and un- 
ventilated rooms inevitably lose vigor ; the process 
of the oxydation of the blood being checked, the 
process of making blood, through the digestion and 
assimilation of the food taken into the stomach, is 
also checked. With foul air, therefore, a smaller 
amount of muscular force is generated from the 
same amount of food. Moreover, in close rooms, 
unventilated and uncleaned, the germs of certain 
diseases, known as filth- diseases, viz., typhus and 



38 POLITICAL ECONOMT. 

typhoid fevers, scarlet; fever, diplitlieria and others, 
are preserved and readily commnnicated. 

46. The cause here adduced is not of slight im- 
portance in accounting for the differences in the 
labor power of different communities and nations of 
men. 

As the people of the United States are the best 
nourished, so they are, by a long interval, the best 
sheltered people in the world. It is impossible for 
an American who has not traveled widely, to form 
an adequate conception of the manner in which the 
laborers of other countries are housed. 

47. The Laborer's Intelligence— A fourth reason 
for the superior efficiency of the laborers of one 
class or nation over those of another, is found in their 
higher intelligence. Intelligence is a most powerful 
factor in industrial efficiency. I speak not now of 
technical knowledge, but of clearness of mind^ 
quickness of apprehension, strength of memoiy, 
and the power of consecutive thought, in the degree, 
for instance, in which they are found in New En- 
gland, in Saxony, in parts of Scotland. 

The intelligent is more useful than the unintelli- 
gent laborer : 

{a) Because he requires a far shorter apprentice- 
ship ; he can learn his trade in a half, a third, or a 
quarter the time which the other requires, {h) 
Because he can do his work with little or no super- 
intendence ; he is able to carry instructions in his 
mind, and to apply them with discretion to the vary- 
ing conditions of his work, (c) Because he is less 
wasteful of materials, {d) Because he readily 
learns to use machinery, however delicate or 



MACHINERT. 3^ 

intricate. It is only the intelligent workman who 
can freely avail himself of this great help. Brains 
are not alone reqnired for the invention of machines ; 
they are reqnired for their adjustment, their ordi- 
nary use, and their occasional repair. 

48. The capability of dealing with costly and del- 
icate machines varies greatly between differen traces 
and nations of men. In some of the countries of 
Europe, as Turkey and Greece, the ordinary "me- 
chanical powers," the screw, tlie lever, the inclined 
plane, etc. , are used but little, or not at all, in mechan- 
ical operations, the lifting or pulling being do'ne by 
direct physical force, at, of course, the expenditure 
of a vast amount of animal strength. 

Even in highly civilized nations the application of 
agricultural machinery is limited by the inability of 
the peasantry to use it intelligently and judiciously. 
The Judges of the World's Fair, of 1852, reported 
that there was probably as much sound, practical 
labor-saving invention and machinery unused, at 
that time, as was used, " solely in consequence of 
the ignorance and incompetence of the work 
people." 

The United States is the only country in the 
world, excepting some of the English colonies, in 
which it can be safely assumed of the average labor- 
er that, after a reasonable period of experiment and 
trial, he will be able to use delicate and costly ma- 
phinery to the advantage of his emj)loyer. In all 
other countries, even the most civilized, it is only 
picked laborers who can use intricate machinery 
without doing more damage than their labor is 
worth. 



40 POLITICAL ECONOMY. 

49, Cheerfulness and Hopefulness in Labor. — A fiftll 
reason for the liiglier efficiency of tlie laborers of one 
class or nation than of another, is found in greater 
cheerfulness and hopefulness, growing out of 
higher self-respect and social ambition and a more 
direct and certain interest in the product of 
industry. 

The importance of this cause is most conspicuously 
seen in the wastefulness and inefficiency of slave 
labor. Always and everywhere, that labor has been 
found to be vastly inferior to the labor of freemen. 
Even the stimulus of the lash fails to command the 
faculties which instantly spring into activity under 
the insi3iration of an ample reward. 

Even among free laborers, the degree in which the 
physical and intellectual powers may be engaged in 
the production of wealth depends greatly on the 
directness and certainty of the reward. This is 
proved by the difference every wdiere observed 
between the exertions of wage laborers and those of 
men working on their own account. The wage 
laborer necessarily becomes, in a greater or less de- 
gree, a time server, an eye jDleaser. On the other 
hand he who is working for himself, keeps no 
grudging account of his time or exertion. If the 
proprietor of land, he watches against waste with 
unfailing eagerness. His vines, his plants, his ani- 
mals, his fences, his buildings, are borne upon his 
mind ; and no care or pains are withheld to guard 
them against the almost infinite forms of injury 
which beset these species of wealth. He is early 
afield, for the day is not long enough for all he 
wishes to do ; and when night falls, he still lingers. 



WORIv AND ITS BE WARP. 41 

tying 11 J) liis vines, tinkering liis slieds^ tending liis 
cattle, bringing home the harvest. 

50.— Doubtless much of the indolence which we 
have been accustomed to regard as constitutional 
with certain races and nations of men, and as indi- 
cating lack of physical endurance or feebleness of 
will, is due simply to the absence of incentive, re- 
sulting from unjust laws or bad social institutions. 
It would be enough to make one laugh to hear the 
Scotch spoken of as lazy. The energy and persever- 
ance of that ]3eople have been illustrated in every 
quarter of the globe. Yet, three or four generations 
ago, the Scottish people, says Prof. Hearn, "were 
conspicuous for their incorrigible indolence." The 
ample explanation was found in the almost univer- 
sal system of short leases or of tenancy at will, which 
dej)rived the cultivator of all assurance that his 
labor in improving the land would profit himself. 
A single wise act of legislation cured this defect ; 
and with the system of short leases and tenancies 
at will disappeared the laziness of the Scotch 
people. 

Not half so long ago as that, the Irish were a 
proverb over Europe, for indolence and shif tlessness 
in labor. Arthur Young describes them as "lazy 
to an excess at work," but "spiritedly active at 
play." The Irishma,n of that day was sjjiritedly 
active at play, because the fun was sure to be his 
own. He was lazy to an excess at work, because 
laws, social proscription and customs relating to 
land, kept from him a large part of the natural 
fruits of his labor. Every country of the globe has 
witnessed, since 1850, the indomitable pluck and 



4:^ POLITICAL mONOMT. 

energy of tlie Irisli at work under equal laws and 
with a ^'fair cliance." 

51. The Varying Efficiency of Labor.— I have indi- 
cated the chief causes which influence the efiiciency 
of the individual laborer in the production of wealth. 
The joint effect of all these causes is very consider- 
able. 

In com]3aring the cost of constructing railroads in 
India and in England, for instance, it was found 
that, though the Indian laborer received but ^ to 
6d. a day, and the English laborer, 3s. to 3s. and 6d., 
the sub-contracts in the two countries were let at 
the same prices. The English cotton spinner is paid 
as many shillings as the East India spinner gets 
pence ; yet the cotton cloth of England undersells 
that of India in the Indian markets. 

As between England and Russia, it is found that 
a weaver in the former country tends from two to 
three times as many looms, as in the latter, the 
English looms moving, moreover, at a higher rate 
of speed. 

Mr. Brassey states that, in the construction of 
certain French railways, it was found that the 
working capacity of the Englishman was to that of 
the Frenchman as flve to three. 

Superior as are the workmen of England to those 
of other countries of Europe, they are, in turn, sur- 
jjassed, on the average, by those of the United 
States, in the respects of strength, intelligent direc- 
tion of force, and ability to use machinery to ad- 
vantage. 

52. The Organization of Industry.— The second fac- 
tor of the labor x^ower of a community is that 



Dl VISION OF LABOR. 43 

which is derived from the organization of in- 
dustry. 

53. Division of Labor.— In primitive society the 
division of labor does not exist, or it is found only 
in a rudimentary state. Each able-bodied man 
builds his own wigwam or hut, shapes his own bows 
and arrows ; cares for his own horses, if he have 
any, and hunts or fishes for himself. Yet, even 
here, the division of labor as between the sexes is 
in some degree carried out. The women make the 
nets, weave the blankets and cook the food, as 
duties more suitable to their i30wers. Soon, how- 
ever, emerges a division of labor founded on differ- 
ences of capability less fundamental than those of 
sex. The smith appears, working at first alike in 
iron, w^ood and stone. He does all the w^ork of this 
class w^hich the community requires ; and, in return, 
receives flesh and fish for his own use from the hunt- 
ers and fishermen whose spears and hooks are 
sharpened and pointed at his forge. As the amount 
of this class of work to be done increases, three 
smiths, instead of one, come to be employed ; one 
working in iron, one in wood, and one in stone, 
known respectively as the blacksmith, the carj^en- 
ter and the mason. As the wants felt by the com 
munity are multiplied, as modes and fashions ap- 
pear, new classes of artisans come into existence, 
each working on some one class of substances, 
or making some one class of articles. The cabinet- 
maker follows the cari3enter ; the jeweler the black- 
smith ; the sculptor, in time, the mason. Finally, 
the operations of each trade come to be distributed 
amono; distinct classes of laborers. 



44 POLITICAL ECONOMY. 

54. How the Division of Labor Increases Production. 
— It is difficult adequately to appreciate the increase 
of production wliicli results from the application of 
this principle. 

{a) It shortens apprenticeship. 

(b) It develops dexterity. 

{&) It obviates the loss of time and the distraction 
of thought which would be involved in passing from 
place to place, and in laying down the tools of one 
trade to take up those of another. 

id) It facilitates invention and leads to the dis- 
covery of improved processes and new materials. 

{e) It allows women and children, as well as men 
who are suffering from some partial disability, to 
find places in the industrial order where they can 
labor to advantage ; while among men of full 
powers, it assigns to each that work which is best 
suited to his individual capacity. 

55. The Territorial Division of Labor. — This is a 
phrase devised by an English economist during the 
great poj)ular agitation which preceded the repeal 
of the Corn Laws, to express the carrying out of the 
principle of the division of labor, which we have 
thus far contemj^lated in operation among the in- 
dividuals of a community, to communities and na- 
tions. The phrase intimates that the vast industrial 
advantages which attend the application of that 
principle within the hamlet and throughout the 
county, will accompany that principle in its exten- 
sion over the whole field of the world's production, 
both agricultural and mechanical. This is the main 
economic argument in favor of Free Trade, as op- 
posed to what is called Protection, 



ORG AN IZ A TION OF IND USTR Y. 45 

56. The Organization of Industry.— But the advan- 
tages wliicli are derived immediately from tlie divis- 
ion of labor, are but a part of the total advantage 
which is attributable to what we have termed the 
organization of industry. In addition to those al- 
ready indicated, we find, under the larger title, a 
vast gain of productive power resulting from the in- 
troduction of the princix3le of comx)etition, the crea- 
tion of esprit de corj[>s^ and the direction given to 
the mass of unthinking and uninformed laborers by 
the few clear, strong spirits, who, under such a 
system, rule the entire industrial operations of the 
community. 

{a) Competition can only be introduced as an ac- 
tive force where the ojDportunity for exact and easy 
comparison of results exists. Where each one of a 
number of persons is performing every day a large 
number of miscellaneous duties, now a little of this, 
then a little of that, it is difficult or impossible to 
measure the achievements of the several persons so 
employed, bring them to a scale, and assign credit 
or blame according as each is found to have done 
more or less in a given time. 

(&) The creation of esprit de corps within trades 
and professions becomes a tremendous force in in- 
dustry. Competition operates upon the laborer, 
through the employer s desire to get the most out 
of each workman, in return for his wages, and 
through the laborer's desire to obtain and retain 
employment. The principle now invoked operates 
on the laborer, perhaps not less powerf ull}^, through 
the public sentiment of the craft, establishing stand- 
ards of workmanship and laws of conduct which 



46 POLITICAL ECONOMY. 

tend to lift each workman to the level of the 
best. 

57. (c) Mastership in Industry.— Bnt the most im- 
portant of the sources of gain in productive i)ower, 
now under consideration, is found in that master- 
sliip of industry wliich is created by the division of 
labor. That division cannot proceed to its natural 
limits without giving rise to the subordination of 
the mass of the laboring population to a select and 
comparatively small body of employers, who assume 
the responsibilities and direct the agencies of pro- 
duction. 

Whether this gain is accomplished at a certain 
social and political cost, is a question the economist 
is not called upon to discuss. That question be- 
longs to the social philosopher or the statesman. 

Looking at the matter in its purely economic as- 
pect, it is clear that this gain is not realized with- 
out an initial loss, inasmuch as the laborer, under 
the wages system, necessarily has a less direct and 
certain interest in the product of his industry, than 
the man who labors on his own account. But this 
loss is compensated, many times over, by the gain to 
production which results from the impulse and 
direction given to industry by the thought-power 
and will-power of the best minds in the community. 



CHAPTER III. 

Capital : Its Origin" at^d Office. 

58. What is Capital?— The third great agent in the 
production of wealtli is Capital. The capital of a 
community is that j^art of its wealth (excluding 
land and natural agents considered as unimproved'^) 
which is devoted to the production of wealth. 

Some writers, indeed, insist that the climate of a 
country, so far as it especially favors production, is 
to be reckoned as a part of the capital of that coun- 
try. I prefer to say that the beneficent distribution 
of heat and moisture by the gratuitous action of na- 
ture, is a favorable condition of j)roduction, but is 
not capital. A sound system of jurisprudence, 
which secures the impartial administration of jus- 
tice ; a sound organization of the political body, 
which maintains peace and order, are most favorable 
conditions of production ; they lead to a vast crea- 
tion of values ; they are better than much capital to 
the people enjoying them ; but they are not capital. 

59. Its Origin.— The origin of capital is so familiar 
that it need not be dwelt upon at length here. A 
very simple illustration may suffice. Let us take 
the case of a tribe dwelling along the shore, and 
subsisting upon fish caught from the rocks which 

* The reason for this exception will appear when we come to treat 
of the rent and price of land, 



48 POLITICAL ECONOMY. 

jut into the sea. When the fish are plentiful, the 
people live freely, even gluttonously. When their 
luck is bad, they submit to privations which involve 
suffering, reaching sometimes the pitch of famine. 
Now let us supx)ose that one of these fishermen, 
moved by a strong desire to better his condition, un- 
dertakes to lay by a store of fish. Living as closely 
as will consist Avith health and strength, he denies 
himself all superfluity, even at the height of the 
season, and by little and little, accumulates in his 
hut a considerable quantity of dried food. 

As the dull season approaches, our fisherman 
takes all the food he can carry, and goes into the 
hills, where he finds trees Avliose bark can be de- 
tached by sharp stones. Again and again he returns 
to his work in the hills, while his neighbors are 
painfully striving to keep themselves alive. At the 
end of the dull season, he brings down to the water 
a canoe, so light that it can be borne upon his 
shoulders, so buoyant that he can paddle in it out 
to the ' ' banks ' ' which lie two or three miles from 
shore, where in one day he can get as many fish as 
he could catch from oft' the rocks in a week. 

60. Its Oflace.— The canoe is capital ; the fisherman 
is a capitalist. He can now take his choice of three 
things. He may go out in his canoe and bring home 
supplies of fish which will allow him to marry and 
rear a family, and with his sur]3lus hire some of his 
neighbors to build him a hut, their women to weave 
him blankets, and their children to bring water from 
the spring, or, secondly, he may let out the canoe 
to some one who will be glad to get the use of it on 
pavment of all the fish which one family could fairly 



THE CREATION OF CAPITAL. 49 

consume, and himself stay at home in idleness, or, 
which is i:)erhaps most likely, he may, thirdly, let 
out the canoe, and himself turn to advantage the 
knowledge and experience acquired in its construc- 
tion, by making more canoes. Again and again he 
will re-appear upon the shore, bringing a new canoe, 
for the use of which a score of his neighbors will 
comjjete. 

And later canoes, be it- noted, are made at a small- 
er cost of effort and sacrilice on the x^art of the 
builder. He has become familiar with the groves 
where the trees are largest, and the trunks most 
clear of branches ; he has acquired a knack which 
makes it almost a pleasure to strii3 off the vast rolls 
of tough, elastic bark ; he never spoils his half-com- 
pleted work, now, by a clumsy movement or an ill- 
directed blow. Moreover, his i3ersonal toil is re- 
duced, for he has hired men to carry his burdens 
and do all the heavy labor. 

61. The Increase of Capital.— But soon the canoe- 
builder's profits are threatened. Thus far, in the 
possession of exceptional skill and knowledge, he 
has been a monopolist, and has reaped a monopo- 
list's gains. ]N"ow, however, stimulated by the sight 
of such great wealth gathered (that is, so great a 
command of otlier persons' labor acquired) by one 
man, others begin to enter the field. As an essen- 
tial condition, each must save and accumulate 
enough food to supi^ort him while making his first 
boat, that is, must accumulate a certain amount of 
capital. 

This, however, is less difficult than it was in the 
case of the original boat-builder, first, because fish 



50 POLITICAL ECONOMY. 

have come, tlirough the multiplication of boats, to 
be much more easily obtained ; secondly, because, 
with good models of boats before him, the new 
builder has fewer experiments to make ; thirdly, be- 
cause certainty and nearness of success will inspire 
the labors-of ten men where any one will be moved 
to great sacrifice and exertion by a prospect that is 
distant and doubtful. Moreover, some of the 
shrewdest of the assistants of the old boat-builder, 
who have watched him at work, and whom he has 
trusted more and more to do even the nicer parts of 
his task, begin to desert him and to set up for them- 
selves. 

For a time, while the number of boats increases 
rapidly, the quality suffers deterioration ; two fish- 
ermen are drowned upon the banks by the breaking- 
up of boats in a sudden squall. The boat-builders 
in fault are condemned by the general assembly of 
the tribe to suj)port the widows and orphan chil- 
dren. The rage for mere cheai^ness is checked. 
Boats are now tested before they are used, and two 
or three ambitious builders find themselves driven 
out of the trade by the loss of j^atronage conse- 
quent on the failure of their work. 

And it is to be noted that the i3rofits of boat-build- 
ing are rapidly reduced. The first boat built repaid 
the cost of its construction in a few weeks. The 
boats now made only repay the cost of their con- 
struction in the course of months. Yet, the men 
who make boats still get a better livelihood than 
those who use them ; while those who use boats get 
a better livelihood, even after paying the rent, than 
those who still fish off the rocks. 



INCREASE OF CAPITAL. 51 

62, What will they do with it ?— No w let us siipi)Ose 
that the manufacture of boats has proceeded so far 
that there is one serviceable boat for every four adult 
males of the tribe. At this point, one of two wide- 
ly divergent courses may be adopted, with very im- 
portant results to the future of the community. 

First, the multiplication of boats goes forward 
until each man is provided with a boat in which he 
can catch enough hsh, in two or three hours, a day, 
to feed him and his family, summer and winter, 
good seasons and bad. The creation of capital has 
at least led to this good result : it has put famine 
out of the question. The rest of the time is spent 
by the members of the tribe in idleness or sport. 

Secondly, the manufacture of boats stops at the 
point where fish for the- whole tribe can be provided 
by one-fourth its members, toiling early and late 
upon the banks. The remaining members, those 
who, through youth or self-indulgence or vicious 
habits, have failed to provide themselves with boats, 
those who through misfortune have lost their boats 
and have become discouraged, those who, by physi- 
cal weakness, or cowardice are least fitted to un- 
dertake the rugged duty of the fisherman, these all 
betake themselves, in one capacity or another, to 
the service of the fishermen, the capitalist employ- 
ers of the tribe. Only so many boat-builders re- 
main as are needed to rejoair and keej) uj) the exist- 
ing stock. The house-builder now takes the place 
of the boat-builder; no one is satisfied to live in the 
sort of hut which a generation ago would have been 
thought good enough for the chief. Menial servants 
become very numerous. The fashioning of orna- 



5^ POLITICAL EGONOMT. 

ments and trinkets takes up a vast amonnt of 
labor. 

63. New Economic Desires,— Soon a new want 
emerges. A plant with bright flowers is discovered 
among the hills and brought home as a cariosity. 
By cnltivation it undergoes more or less change, 
particularly in the development of large tubers 
which are found to be highly palatable and nutri- 
tious. As affording a change from the everlasting 
sea-food of the fathers, these are relished greatly 
and soon a large number of persons are breaking up 
ground to plant and cultivate them. 

The introduction of a vegetable diet marks the 
beginning of a revolution in the life of the commu- 
nity. After this, any thing is possible. The taste 
for a diversifled diet, once felt, knoAvs no limits. 
Agriculture has begun, involving the necessity of 
capital in a hundred forms. New foods are follow- 
ed by new libers ; manufactures spring into being, 
and all the potentiality of the modern nation now 
resides in the tribe which a generation ago lived 
wholly on flsh caught from rocks along the shore. 

64. The Law of Capital.— It is not necessary to 
trace further the increase of capital. At every step 
of its progress, capital follows one law. It arises 
solely out of saving. It stands always for self- 
denial and abstinence. At the beginning, savings 
are made slowly and painfully; and the first items 
of capita] have a power in exchange (an ability, 
that is, to command the labor of those who have 
not capital), corresponding to the difficulty with 
which they are secured. The bow, the spear, the 
canoe, the spade, much as they cost, pay for them- 



THE LA W OF CAPITAL. 53 

selves in a few days. Subsequent increments of 
capital are gained at a constantly diminishing 
sacrifice, and receive a constantly diminishing re- 
muneration, until, in the most advanced countries, 
buildings are erected and machines constructed 
which only pay for themselves in ten, twelve or 
even twenty years. 

At every stage, we note, too, that capital releases 
labor power which was formerly occupied in pro- 
viding for the wants of the community according to 
its then prevailing standard of living. At every 
stage, the members of the community make their 
choice, whether they will apply the labor power, 
thus released, to the production of wealth, in other 
branches, or will content themselves with living as 
well as before, upon easier terms, giving up the new- 
ly acquired leisure to idleness or si3ort. 

65. Subsistence.— The office of capital has been per- 
haps abundantly shown in the account given of its 
origin. Capital, as we have seen, is that portion of 
wealth'^ which is employed in the production of new 
forms of wealth. 

At first, capital is limited to the means of subsist- 
ence for the producer. It was not easy in the first 
stage of industrial progress, to lay by enough of the 
game or fish of one season to last until the next. 
But when once a tribe, by reason of exceptional 
good fortune, or through prudence and self-control 
in the use of its scanty resources, acquired a reserve 
sufficient for a full year's subsistence, it became in 
a degree master of its conditions. It could shift its 
seat to better hunting or fishing grounds, if such 

*Excluding land and natural agents, considered as unimproved. 



54 POLITICAL ECONOMY. 

existed ; it could pursue its avocations systematical- 
ly and economically, doing that which should be 
esteemed most productive in the long run, not, as 
before, hurriedly and wastefuUy, under the stress 
of immediate want; the physical strength of its 
members was kept at the highest point by ample 
and regular diet. 

A full year's subsistence forms the most im- 
portant advance which a people ever maker in their 
progress towards industrial prosi3erity. Many peo- 
ples never find them.selves able quite to accomplish 
this. The people of British India can hope for no 
more, in good years, than to be carried through into 
the next ; while once in every four or five years, a 
famine following a short crop sweeps away millions 
by sheer starvation, or by the fevers which feed upon 
half -famished populations. 

66. Tools.— The next purpose, in logical, and gen- 
erally, also, in historical order, for which capital is 
accumillated, is the acquisition of tools. I use the 
word tools here in its largest sense, including all 
apparatus, utensils and machinery. The knife, the 
bow, the spear, the canoe, the net, are the tools of a 
certain stage of industrial society ; the spade, the 
cart, the plow, the distaff, the forge, are the tools 
of a later stage ; the loom, the lathe, the printing 
press, the trip-hammer, the railroad and the ship, 
may, with equal propriety, be called the tools of 
to-day. 

67. Materials.— The third form which capital takes 
is that of Materials. The word, as here used, covers 
all kinds of wealth which are devoted to the pro- 
duction of wealth in any other way than as subsist- 



fSE FORMS OP CAPITAL. 55 

ence for tlie laborer wliile engaged in production, or 
as tools to increase liis power in production. In a 
primitive state of industrial society, materials play 
a very small part. The bait for the hook among 
the tribe of fishermen ; the corn which is saved for 
seed, in a planting community, are the most prom- 
inent materials of early industry. In a later age a 
large part of all the accumulated wealth of a com- 
munity exists in this form. 

68. The Three Forms of Capital.— In a certain sense 
these three may be resolved into one. Subsistence ; 
as, indeed, all the forms of subsistence itself may 
be resolved into one, Food. Thus, the first simple 
tools of the barbarous community may be said to be 
exactly represented by the subsistence which was 
required by the laborers engaged in making the 
tools. The first materials which were produced by 
the aid of these tools may be said to be likewise rep- 
resented by the subsistence of the laborers using the 
tools, added to that of the laborers who made the 
tools. And, in turn, all the forms of subsistence, 
food, cloXhing, shelter, and fuel, may, in theory, be 
reduced to one, food. The clothing of the laborer, 
for example, rex^resents the food which he consumed 
while he was gathering the fibers or the wild grasses 
and weaving them into a blanket ; the hut repre- 
sents the food consumed during its erection ; the 
fuel represents the food consumed while the laborer 
was gathering fagots in the forest. 



CHAPTER IV. 

The Productive Capability of a Community. 

69. Productive Capability.— We have spoken, in suc- 
cession, of land power, labor power and capital 
power. The productive capability of any commcn- 
ity is determined by these three elements, in the 
degrees in which they are severally found to exist 
there. 

While the land remains in the condition of in- 
creasing returns, as in the Eastern States of the 
American Union during their earlier history, pro- 
duction may be large, per head of population, with 
but a small amount of capital available. Even after 
cultivation has reached the condition of diminishing 
returns, the energy, intelligence and skill of the 
laboring class and the thorough organization of in- 
dustry may wrest a comparatively high rate of pro- 
duce from the reluctant soil ; or, in spite of an igno- 
rant, clumsy and spiritless population, as in the west 
of England, the concentration of a vast capital upon 
a naturally rich soil may yield large returns, long 
after the same stage of cultivation has been reached. 

Where all three conditions are found favorable to 
production, i. e., fertile lands not yet fully taken 
up by settlement, an intelligent and energetic labor- 
ing population, with abundant capital, as in the 
opening up of parts of our Western States within 
the last thirty years, the rate at which wealth grows 
appears almost fabulous. Surely, inevitably, how- 



PRODWTIVE CAPABILITY. 51' 

ever, the increase of x)opiilation will bring about the 
condition when an increasing labor power and caxoi- 
tal power must struggle with a decreasing capability 
of the soil. Mechanical inventions, chemical dis- 
coveries, may long postpone the diminution of the 
per-capita x^rodnct ; all im]3rovements in the indus- 
trial character of the working classes, or in the or- 
ganization of labor, enable a larger population to be 
supported without reduction in the quality of their 
subsistence ; but not the less is the power of one of 
the factors of production steadily on the decline. 

70. Such is the condition under which the earth is 
cultivated by human labor, for thesupply of human 
wants. The production of wealth by mechanical 
processes is, however, as we have seen, subject to 
this condition only so far as relates to the materials 
employed in manufactures, all of which are derived 
from agriculture. The mechanical processes them- 
selves are subject to no such drawback. On the 
contrary, the increase of population for a consider- 
able period allows the division of labor to take place 
more tnllj, with the result of enlarged production ; 
hence the multiplication and diversification of con- 
veniences and refinements, so far as they involve no 
increase in the amount of material consumed, may 
be carried forward literally without limit. 

71. What limits Production ?— Productive capability 
being thus determined by the three elements which 
have been stated, the greatest question which the 
economist has to answer, the most difficult, the most 
important question in economics, is, why the actual 
production of wealth in any community falls so far 
short of its productive capability. But this is a 



5$ POLITICAL ECONOMt. 

question which cannot be finally answered till the 
reader has been taken through all the departments, 
by turns, of economic science. Under each, we shall 
find something by which to explain the phenomenon 
that the actual production of every commercial and 
manufacturing country, taking a term of years 
together, falls far below the possible production. 

72. Industrial Structure. —Under the present title, 
production, we have to note one liability which be- 
sets the productive power of a community, arising 
from what we may term its industrial structure. By 
this term is intended that organization of the capital 
power and the labor power of a community which 
makes the productive capability of the whole de- 
l^end, in a greater or less degree, upon the character 
of individuals or classes of individuals, and, in con- 
sequence, upon accidents affecting the fortunes of 
such individuals or classes. This is a matter which 
is far too little regarded in reasoning about the 
wealth of nations and communities. Writers in 
economics are apt to speak of the labor power and 
the capital j)Ower of a community, as if they were 
aggregates of pure force. JN'o reference is made to 
structural organization. 

73. Partial Immobility of Capital and Labor.— In all 
advanced industrial societies, labor and capital be- 
come committed to certain courses, from which they 
can only depart after much delay, against great 
resistance and at heavy cost. 

The artisan who has learned a trade becomes com- 
paratively helpless if the opportunities for working 
at that trade are taken away ; the factory hand who 
has learned to perform only one operation out of the 

si 



MISDIRECTION OF IND USTBIAL FORCE. 59 

multitude that go to the si)inning of a single yard of 
cloth, can do little if he be thrown out of the place 
where that operation is to be performed in imme- 
diate connection wdth all the others. In theory, the 
artisan or the factor}^ hand will turn to some other 
held of production ; but the observation of large 
populations, through long periods, shows that such 
readjustments of specialized labor demand more 
energy and enterprise than are possessed by most 
laborers, occupy a great deal of time, at the best, 
and involve no small waste of labor power. 

74. Misdirection of Labor and Capital.— Capital 
power, and, in perhaps a greater degree, labor power, 
are in the hands of individuals whose peculiarities 
of character, of habitude, of station, seriously mod- 
ify the application of capital and labor to produc- 
tion ; whose mistaken aims, whose erroneous im- 
pulses, may divert these forces from that object ; 
whose accidents of fortune may impair the energy 
of the industrial movement, or paralyze it altogether. 

The most familiar illustration we could use is that 
of a factory whose master has suddenly died. The 
labor power remains ; the capital power remains ; 
but the spring that set them in motion is broken. 
Perhaps the loss will never be made good ; an in- 
comx^etent person succeeds by right of relation- 
ship) ; bad management dissipates both the accumu- 
lated wealth and the reputation of the establish- 
ment ; and, at last, after a dreary struggle, the stock 
and fixtures are sold, the factory is dismantled, and 
the operatives go forth in all directions to find em- 
ployment elsewhere as they may. 

So difficult is the control and direction of capital 



60 POLITICAL ECONOMY. 

and labor, that a distinct class is called into being, 
in all industrially advanced communities, to under- 
take tliat function. This class is known as the em- 
ploying class, or, to adopt a word from the French, 
the entrepreneur class. 

75. The Entrepreneur Class.— Mastership is essential 
to a large and varied production. In its first stages, 
the division of labor does not necessarily imply the 
introduction of the master-class. When the forms 
of production are few ; when the materials are sim- 
ple ; when only hand- tools are used ; when each 
artisan working at his bench makes the whole of the 
article to be marketed ; when styles are standard, 
and the consumers of his product are found in the 
immediate neighborhood, perhaps wdthin range of 
his x^ersonal acquaintance, the need of the master is 
not felt. 

When, however, the hand-loom gives way to the 
power-loom ; when the giant factory absorbs a 
thousand petty shops ; when many j)ersons, of all 
degrees of skill and strength, are joined in labor, all 
contributing to a result which perhaps not one of 
them comprehends perfectly or at all, when ma- 
chinery is introduced which deals with the gauzy 
fabric more delicately than the human hand, and 
crushes stone and iron with more than the force of 
lightning ; when costly materials require to be 
brought from the four quarters of the globe, and the 
products are distributed by the agencies of com- 
merce through every land ; when fashion enters, 
demanding incessant changes in form or substance 
to meet the caprices of the market, the master be- 
comes a necessity of the situatioja, 



MASTERSHIP IN IND U8TR K 61 

The work lie is called to perform is not alone to 
enforce discij^line through tli^ body of laborers thus 
brought under one roof ; not alone to organize these 
parts into a whole and keej) every X3art in its place, 
at its proper work ; not alone to furnish technical 
skill, and exercise a general care of the vast proj)- 
erty involved ; but beyond these and far more than 
these, to assume the responsibilities of production, 
to decide what shall be made, after what patterns, 
in what quantities, at what times ; to whom the prod- 
uct shall be sold, at what prices, and on what terms 
of payment. 

76. In a community where the division of labor 
has proceeded but a little way, the man of intellect 
moves but one pair of arms. In a highly organized 
industrial system, he moves a thousand. The vast 
difference in production which is wrought by the in- 
troduction of intelligence, forethought and skill, be- 
comes multix:)lied just to the extent to which the 
principle of mastershix) is carried. One man who 
has the genius to plan may easily find a host of 
helpers, each of whom can execute his schemes 
nearly if not quite as well as he himself Individ aally 
could, who yet would have been wholly helpless and 
amazed in the presence of the exigencies, the diffi- 
culties, the dangers, which only arouse the spirit of 
the master, stimulate his faculties, and afford him 
the keenest zest of enjoyment. 

77. Whether we regard this as the ideal state or 
not, whether we rejoice or rej)ine at the extension of 
the principle of mastership in industry, it is the 
most characteristic fact of the industrial system of 



62 POLITICAL ECONOMY. 

to-day ; and is likely to gain rather than to lose im- 
portance in the years to come. 

During the great moral and political fermentation, 
which brought on the Revolution of 1848, the atten- 
tion of social reformers in France was called to the 
possible benefits of Co-operation, being an industrial 
system in w^hich mastership should disappear, as the 
cure for a large part of the evils, having an economic 
origin, which afflict society. 

]S"ot a few of the English economists, and, follow: 
ing them, American economists generally, have been 
led to take up co-operation as a practicable scheme 
whicii only needs to be tried to work the most benef- 
icent and far-reaching results. Doubtless this view 
is held honestly and sincerely. . But it exhibits a 
great lack of practical knowledge concerning the 
organization of industry and the operations of com- 
merce. 

So far from it being true that the abolition of mas- 
tership is at present feasible, there never was a time 
when the distance between the man and the master 
was so wide as it is to-day and that distance tends 
continually to increase. The possibilities of gain or 
of loss were never so great as now ; the choices and 
decisions essential to the conduct of business were 
never so frequent or so difficult ; the difference in the 
product, which results from the difference betw^een 
the able and the inferior management of affairs, was 
never so great ; the toleration offered to the common- 
place in industry, was never so small. 

78. Possibilities of Industrial Damage Involved in the 
Entrepreneur System.— While the entrepreneur sys- 
tem becomes, thus, an agency of the highest efficiency 



LOSS OF PROD UGTIVE PO WEB. 63 

in increasing the iDrocluctive power of a community 
it will be seen that it involves the possibility of in- 
dustrial disasters commensurate with the forces it 
sets in motion. Just as the accidents of the railway 
are more destructive and fearful than those of the 
wagon road, so do the catastro]3lies of modern pro- 
duction exceed, in their wreck of fortune and waste 
of capital, all that is X30ssible under the less ambi- 
tious organization of x3roductive agencies character- 
istic of an earlier state of industrial society. The 
mistakes of the man who controls a thousand work- 
men are multiplied a thousand fold. 

While the entrepreneur class consists generally of 
strong men, not only does that class contain many 
persons who by the accidents of fortune have come 
into the control of the agencies of production with- 
out the necessary qualihcations, but the ablest men 
of business fall far short of the ideal standard. Not 
to speak of intellectual failings, the infirmities of the 
will, even among the bravest and best, are such as to 
make it a matter of course that no small part of the 
industrial power placed in the hands of the entre- 
preneur class will be misdirected. The 23erfect tem- 
per of business is found in few men : oscillations 
between recklessness, on the one hand, and over- 
cautiousness, on the other, constitute the rule, while 
absolute self-poise is the rare excej)tion. 

79. Destruction ofWealth.— Another cause which re- 
quires to be mentioned, as in a degree accounting 
for the failure of industrial society to accumulate 
weal th and maintain a productive capability corre- 
sponding to the theoretical efficiency of the three 
primary agents of production, land, labor and capi- 



64 POLITICAL ECONOMY, 

tal, is tlie actual destruction of wealth by accident or 
by the convulsions of nature. The losses by fire alone 
in the United States probably exceed a hundred 
millions of dollars a year, if structures only are con- 
sidered ; while, were we to add the damage to crops 
and forests, the sum of wealth consumed by this 
fearful agent would be greatly increased. Hurri- 
canes and storms and floods annually waste and de- 
stroy no inconsiderable portion of the products of 
human skill and toil. 

All these causes make the production of wealth 
in any community fall short, often very far short, 
of what it would become under the full and har- 
monious operation of its land power, its labor power 
and its capital power. 



PART III. 

EXCHANGE. 
CHAPTER I. 

The Theory of Yalue. 

80. Exchange as a Department of Political Economy.— 
Under the title exchange, in a systematic treatise on 
political economy, we consider the Ratios of Ex- 
change, the terms on which goods, commodities, ar- 
ticles possessing value, items in the sum of wealth, 
exchange for one another. We are here called to 
answer the question : " Why does so much of this 
commodity exchange for so much of that ? ' ' 

81. Exchange Arises out of the Division of Labor.— 
The occasion for exchange clearly arises out of the 
division of labor. Were all persons engaged in the 
same productive avocations, there would be no in- 
ducement to exchange. To barter fish for fish, or 
bread for bread, would be simply a waste of time and 
energy. 

Let, however, the iDroduction of the individuals of 
a community be varied by ever so little, the occasion 
for exchange may and probably will arise. If one 
agriculturist raise wheat, another rye, another po- 
tatoes ; and if others raise, some cattle, some sheep, 
some swine, the products will soon begin to be ex- 
changed, and the question will arise, how much 



66 POLITICAL ECONOMY. 

wheat shall be giFen for a bushel of rye or potatoes ; 
how many sheep or swine for an ox ? Let the prin- 
ciple of the division of labor be carried further, until 
a score or a hundred of mechanical arts and trades 
and half a dozen learned professions come to be rec- 
ognized, and the occasions for exchange will rapidly 
extend to a large j)art of the entire production of 
the community. The farmer may still consume a 
half of his own corn and beef and potatoes, but the 
smith will scarcely consume the product of his own 
labor for three days in the year. 

82. An Exchanging Class.— And it will result, either 
that these persons, having occasion to exchange their 
products for those of others, will have to give up an 
ap23reciable portion of their time to making those 
exchanges in person, or else, the work of making ex- 
changes will become the subject matter of a new 
profession or avocation ; and there will come to be 
persons known as peddlers, who, with horses and 
wagons, will go from farm to farm, and from house 
to house, fetching what is wanted and carrying what 
is not wanted, or, more properly, bringing what is 
more wanted and taking away what is less wanted. 

If the smith can in one day make as many horse- 
shoes as the farmer could in ten ; and if the farmer 
can in one day do as much in raising wheat as the 
smith could in two or three, it is evident that the 
peddler, who enables the farmer to keep steadily at 
work raising wheat and yet have shoes for his horses, 
and the smith to keep making shoes and nothing 
else, and yet have bread to live upon, is a produc- 
tive agent as truly as smith or farmer. 

83. The Extension of Trade,— Just as the division of 



VALUE. Q>1 

labor between tlie individuals of a community gives 
rise to excliange, so the extension of the same prin- 
ciple to the communities of any land, or, still fur- 
ther, to the several countries of the world, creates 
new occasions for exchange and rapidly multiplies 
the objects to be exchanged. In all these successive 
cases the agencies by which exchanges are effected, 
the labor of the men engaged in trade or transporta- 
tion, the horses and wagons, the steam-cars and 
ships, the services of the clerks who write the or- 
ders for goods and keep the accounts of sales and 
payments, and of the bankers who advance the 
requisite caj)ital or >Temit the proceeds of commer- 
cial ventures, and even the services of the shipx^ing 
reporters and financial editors who supply the inform • 
ation u]3on which merchants and bankers alike 
must act, all these agencies are as truly i)roductive 
of wealth as the labor of mechanics or miners or 
agriculturists, and are to be treated under the title, 
production. 

What alone we have to investigate under the title 
exchange, is the j^rinciple which determines that so 
many dozens of wood screws made in Providence or 
so many pounds of horseshoe nails made in Troy, 
shall exchange for so much of the wheat of Illinois, 
or of the tobacco of Kentucky, or of the sugar or 
molasses of Cuba, and not for more or for less. 

84. Value. — Whence comes this power-in-ex- 
change ? What are its conditions, and what its limi- 
tations ? 

We have defined value as the power which an 
article confers upon its possessor, irrespective of 
legal authority or personal sentiments, of command- 



68 POLITICAL ECONOMY. 

ing, in exchange for itself, tlie labor, or the prod- 
ucts of tlie labor, of others. 

Let us go further, and inquire how it is that one 
article confers on its possessor such a p'ower while 
another does not ; why it is that, of two articles of 
value, one confers upon its possessor the power of 
commanding the labor of others for weeks or years, 
while another is parted with for the service of a day 
or an hour. 

85. Value and Price — But, first, let us introduce a 
term, the use of which is not absolutely necessary 
at this ]3oint of the discussion, which will, neverthe- 
less, save much circumlocution, and perhaps avoid 
a liability to misunderstanding — that term is Price. 
Value and price are thus related : value is, briefly 
speaking, purchasing power, or power in exchange ; 
price is purchasing power expressed in terms of 
some one article ; power in-exchange-for-that-article, 
be the same wheat, or .beef, or wool, or gold, or 
silver. 

In common speech the word price brings up the 
idea of money-value, the purchasing power of an 
article expressed in terms of money. Yet it is 
equally correct to say that the price of a horse is 
seventy-five bushels of wheat, as to say that it is 
one hundred dollars. Inasmuch as we have not yet 
introduced money into our discussion, the word 
price, throughout the present chapter, will be un- 
derstood in its more general sense, as the x^urchas- 
ing power of a commodity expressed in terms of 
some other article, it matters not what. 

86. Distinction between Value and Utility. — In set- 
ting out upon our search for the law of value, a dis- 



UTILITY AND VALUE. 69 

tinction of the greatest importance requires to be 
made. Value must be distinguished from utility. 
Many economists of merit have stumbled at this 
point. Even of those who have observed the dis- 
tinction between the two conceptions, some have 
resorted to unfortunate terms for their characteriza- 
tion, and have written of value in use and value in 
exchange. Now, value in use is utility, and noth- 
ing else, and in political economy should be called 
by that name and no other. 

Nor must it be thought that value and utilit}^ 
have any such necessary and constant relation to 
each other that one may be safely used for the other. 
On the contrary, an article may have the highest 
conceivable utility, yet no value. 

The utility of atmosjiheric air is inexpressible. At- 
mosx^heric air, however, has usually no value, 
because it is supplied naturally, in such abundance 
that any one can have as much of it as he has occa- 
sion to use without giving for it either his labor or 
the products of his labor. Yet Bven atmospheric 
air may acquire value and be sold at a regular, 
definite price, so much jier cubic foot, as when de- 
livered through i3ij)es to a diver beneath the surface 
of the ocean. 

The utility of water is also beyond expression ; 
yet ordinarily water has no value. In cities, how- 
ever, water is delivered to househoklers at fixed 
rates, which are supposed to rei3resent the cost of 
the service by which the fluid is stored, conducted 
and delivered as required. On the other hand, 
something may even be paid for merely getting rid 
of water. A party may enter into a contract for 



10 POLITICAL ECONOMY. 

pumping it out of a mine, or a swamp, or a cellar, 
at so much a gallon ; and a much higher price is 
often thus paid for removing the fluid from the 
place where it is not wanted than is commonly paid 
for bringing it to the place where it is wanted. 

But while utility and value must not, in economic 
reasoning, be used interchangeably, as they so often 
are in ordinary speech, utility is always and every- 
where one of the elements of value. It is always 
present, where value is present, for it cannot be as- 
sumed that a man will give his labor or the products 
of his labor for that for which he has no use. 

87. Useful does not mean Beneficial. — It needs to be 
observed that the utility of which the economist 
speaks is not always the utility recognized by the 
moral philosopher or the physiologist. By that 
term the economist signifies only that an article 
answ^ers a felt human want ; that men have a use 
for it. The appetite from which that sense of want 
arises may be vicious, the object itself may be 
prejudicial, even pernicious. Intoxicating liquors are 
in their main uses, injurious to body and to mind ; 
but so long as men want them, they have utility, in 
the economic sense ; and, so long as men want them 
and can only get them by giving something for 
them, they have also value. 

88. What is the Relation of Labor to Value? — We 
have said that value is the power which an article 
confers upon its possessor, irrespective of legal 
authority or personal sentiments, to command in 
exchange for itself the labor, or the products of the 
labor, of others. 

Does that power arise solely and necessarily from 



VAL TIE AND LABOB. U 

the fact that hibor has been bestowed upon the pro- 
duction of that article ? No. It is true that men 
do not commonly give labor for that which has not 
cost labor ; and that, on the whole, and in the long- 
run, the respective values of a number of articles 
will be nearly according to the amounts of labor 
tluit have been expended upon them, .severally. 
But it is not because an article has cost labor that it 
possesses value. It is only because it cannot now be 
obtained without labor. Prof. Senior well remarks : 
"Any other cause Hmiting supply, is just as 
efficient a cause of value in an article, as the neces- 
sity of labor to its i3roduction." 

The essential conditions of value are that the 
thing to be exchanged shall be susceptible of being 
detached and transferred from its possessor to 
another, and that there shall be some person who 
desires it sufficiently to be ready to give for it his 
labor or the X3roducts of his labor. 

89. Monopoly, or Scarcity- Value. — For example, 
here is an autograi^h of John Milton. The lines may 
have been written to a friend, or from a mere freak 
of fancy, or to occupy an idle moment. Labor, in 
the economic sense, there was none. Yet the auto- 
graph may be worth $20 ; that is, may command for 
its possessor the labor of a skilled workman for ten 
days, of ten working hours each. Here is a high 
degree of value (that is, command of the labor of 
others) where yet no labor has been. The explana- 
tion is found in the fact that Milton is dead, and 
his remaining autograx3hs are few, while many 
people want them, and want them very much. 

This is an instance of what may be called ' ' mo- 



72 POLITICAL ECONOMY. 

nopoly- value," or as some prefer to call it, scarcity- 
value. Tlie value liere is altogether irrespective of 
the amount of labor expended upon the produc- 
tion of the article, simply because the article can- 
not be reizfroduced, or the stock of it replaced by 
labor. \f 

90. Cost of Production or Cost of Reproduction? — 
Again, let us take the case of an article which has 
been produced by a certain exx3enditure of labor, 
but which, by reason of the discovery of new fields 
of the raw material, or of some mechanical inven- 
tion, can now be produced with the exx3enditure of 
only half as much labor. Will the value of the 
stock of such goods on hand be influenced by the 
original cost of producing them ? Not at all. They 
will exchange for other products on the same terms 
. as the goods brought into the market under the new 
conditions. 

In the same way it would seem that if the amount 
of labor required for the x^roduction of this kind of 
goods should suddenly increase, from the diminu- 
tion of the supply of materials, or other cause, the 
stock on hand would acquire a higher value, corre- 
sponding to the cost of bringing in new goods of the 
same quality. 

Hence, in respect to all goods which can be pro- 
duced, or the supply of which can be replaced, with- 
in the time during which those who w^ant them are 
willing to wait for them, we say that value is deter- 
mined not so much by the cost of production, as by 
the cost of reproduction. They are exchanged for 
the products of others, not necessarily in proportion 
to the amount of labor which they actually re- 



COST OF BEPROD UGTIOK 73 

quired, but, rather, accordiDg to tlie amount of labor, 
whether greater or less, which wonkl now be re- 
quired to replace the stock. 

91. Time an Element of Economic Demand.— I said, 
"within the time during which those who want 
them are willing to wait for them." The iact that 
goods cannot be reproduced, or the stock of them 
renewed, without a certain delay, may, for a time, 
confer a monopoly value on the existing stock, just 
as truly as if no more of them could ever again be pro- 
duced. Thus, if the supply of food in a city had 
nearly failed, the fact that an abundance were cer- 
tain to arrive in two weeks w^ould have little or no 
effect on the value of i\\Q scanty store remaining. 

92. Value does not always Correspond to the Cost of 
JReproduction.— But while, as between the cost of 
production and the cost of reproduction, it is the 
latter, and not the former, which determines the 
power which an article shall have in exchange, that 
is, its value, it is not true that value is always de- 
termined by the cost of rej)roduction. It ma}^ be, 
in regard to any given commodity, at any given 
time, that the cost of reproducing it w^ould be 
greater, even far greater, than the price at which it 
sells. How can this be 1 I answer that this inioht 
occur through a diminution in the occasions for the 
use of that article. 

Two generations ago, every decent family possessed 
a spinning-wheel, and spinning-wheels then bore a 
price, fairly proportioned, w^e may supi^ose, to the 
cost of their production with the tools and materials 
then available. A little later, when it ceased to be 
customary to wear homespun and handmade goods. 



U POLITICAL ECOJSrOMT. 

spinning-wheels may be said to have had no vahie 
at all. They were banished to attics, or turned into 
playthings for children, and qnickly smashed to 
pieces. Antiquated machinery is sold, every year, in 
vast quantities, at its value as old iron, though it 
would cost ten times as much to reproduce it. 

93. Demand and Supply.— If, then, neither the cost 
of production nor the cost of reproduction determines 
the power which an article shall have in exchange, 
is there any principle of universal application on 
which value .rests ? I reply, yes : Value depends 
wholly on the relation between demand and supply. 

These terms require to be defined. It will not 
answer to trust to the ideas which the words of 
themselves call up to the mind of the reader. De 
mand and supply alike have reference (1) to a cer- 
tain article, and (2) to a certain price. In the 
economic sense, demand means the quantity of a 
given article which would be taken at a given price. 
Supply means the quantity of that article which 
could be had at that price. Neither of these two 
elements of demand and suj)X3ly must be omitted. 

94. Competition.— This word signifies the unre- 
strained operation of individual self-interest, among 
the buyers and the sellers of any article in any mar- 
ket. It implies that each man is acting for himself 
solely, by himself solely, in exchange, to get the 
most he can from others, and to give the least he 
must himself. 

The idea of competition is opposed to combina- 
tion. Wherever, and in whatever degree, buyers 
or sellers act in concert for a supposed common 
good, whether by insisting upon a certain price, or 



COMPETITION, 75 

by regulating the amount to be bought or sold, there 
com]3etition is, in so far, defeated. In competition 
every man is supposed to be active and alert to slip 
in ahead of every other man and sell his own prod- 
uct first, and sell it at a higher p>rice if possible. 

Conqietition is also opi3osed to custom. When- 
ever buyers or sellers do any thing because they have 
been used to do it, they depart from the rule of com- 
13etition, which requires not only that each one shall 
do what he does with a view only to his own interest, 
but that he shall act in the view of what his interest, 
at the time and in the i^lace, requires. If in any de- 
gree he buys or sells at a certain price, if he buys or 
sells in a certain place, if he buys or sells of or to a 
certain person, because he has done so in the past, 
he obeys the rule of custom. 

Competition is opposed to sentiment, in exchange. 
Whenever any economic agent does or forbears any 
thing under the influence of any sentiment other 
than the desire of giving the least and gaining the 
most he can in exchange, be that sentiment patriot- 
ism, or gratitude, or charity, or vanity, leading him 
to do any otherwise than self interest would promjit, 
in that case, also, the rule of comj^etition is departed 
from : another rule is for the time substituted. 

95. Final Utility.— We have seen that utility, in the 
economic sense, is a condition of demand. Prof. 
Jevons thus illustrates the difference between the 
total utility of any commodity, and the utility be- 
longing to a particular portion of it : 

"A pound of bread, per day, supx)lied to a 
person saves him from starvation, and has the high- 
est conceivable utility. A second pound, per day. 



76 POLITICAL ECONOMY. 

has, also, no slight utility ; it keeps him in a state 
of comxDarative plenty, though it be not altogether 
indispensable. A third pound would begin to be 
superfluous. It is clear, then, that utility is not 
proportional to commodity ; the very same articles 
vary in utility, according as we already possess more 
or less of them." 

"Final utility" is the term proposed by Prof. 
Jevons to express the utility to the consumer of the 
last portion of the commodity purchased ; its utility 
at the point reached just before buying ceases ; the 
point after which any possible purchaser would 
rather keep his money in his pocket than j)ay the 
price for any more of this commodity. 

96. But one Price for a Comraodity.— If, in an open 
market, under full competition, any portion of a 
given commodity is to be sold at a certain price, 
then will all the portions of that commodity sold at 
the same time be sold at that price, whatever the de- 
gree of utility which may accompany each such por- 
tion. 

If I buy a quantity of food for my own consump- 
tion, I do not pay for that jjart which would suffice 
to keep me alive, a price such as I would pay, were 
it necessary, to be saved from starving ; for another 
part of the food, another price corresponding to the 
discomfort and dissatisfaction I should feel in being 
insufficiently nourished ; and, for a third part a 
price corresponding to the pleasure of ami3le and 
generous sustenance. I pay one price for the whole, 
the same for every equal part ; and that price meas- 
ures the final utility of the food to me ; that is, 
the utility of the portion at which I cease to buy^ 



WHAT IS A MARKET? 77 

after wliicli I would as soon keep the price in my 
pocket as liave more of tlie food. 

97. Necessary Qualifications of this Statement.— It is 
manifest that the x^rinciple stated presupx)oses perfect 
competition. If tliat condition fails in any degree, 
the inincii^le is violated. 

The proposition we are considering further re- 
quires to be modified with regard to the obstacles to 
exchange, tlie ignorance or indifference of exchang- 
ers, etc. The consideration of these causes, as 
qualifying the iDrinciple that there can be but one 
price for any commodity, in the same market, at the 
same time, will be more conveniently post^^oned to 
the title " The Friction of Retail Trade." 

98. What is a Market ?~Many definitions have been 
given to the Avord Market. As I apprehend it, the 
term, in political econom}^ should always have ref- 
erence, first, to a species of commodity ; secondly, 
to a groui) of exchangers. In this view, there is no 
market which is a market indistinguishably for all 
or for several commodities, as for tea, iron, cotton 
and wheat ^ but there is a market for each commod- 
ity, by turns, as a market for tea, in which tea is 
bought and sold ; a market for iron, in which iron is 
bought and sold, etc. Thus, there are as many mark- 
ets as there are separate commodities. 

Secondly, a market embraces all those who contrib- 
ute to the supply of or the demand for a given com- 
modity in any place. Hence, all those who are ready 
to buy of or sell to each other belong to the same 
market, no matter where they live. I say, who are 
ready to buy of or sell to each other. It does not 
follow from this that all who in the same place are 



78 POLITICAL ECONOMY. 

buying and selling tlie same article belong to the 
same market. 

Tims, suppose there are in New York five im- 
porters of tea, fifteen wholesale dealers in that arti- 
cle, a hundred retailers, and a half million consum- 
ers. All these do not belong to the same market. 
The importers of tea and the wholesale dealers con- 
stitute one tea market, the wholesale dealers and the 
retailers constitute another tea market ; the retailers 
and the domestic purchasers constitute still another 
tea market. There are as many markets as there 
are gronps of exchangers. In the case sux3posed, 
there are three tea markets ; each has its own group 
of buyers and sellers ; and in each of the three, at 
any time, tea is sold at a price different from that at 
which it is sold in any of the others. Thus, the 
price for precisely the same sort of tea, in the mark- 
et made up of importers and wholesale dealers, 
may be $1.00 ; in the market made nj) of wholesale 
dealers and retailers, $1.10, and in the market made 
up of retailers and domestic purchasers, $1.25. 

Hence we see that, without such a definition of 
the word market, it would not do to say that there 
can at any time in an 3^ market be but one price for 
a given commodity. There is never a day, in any 
great mart, where tea, iron, wool, wheat, or what 
not, is not being sold at several different prices, it 
may be in the same street, though not, as herein ex- 
plained, in the same '^ market." 

99. Normal Price.— If there were a good market for 
any given commodit}^, i.e., if comx)etition were per- 
fect ; if there were no large stock of that commod- 
ity, but it could be produced freely and equably 



NORMAL PPdCE. 79 

throiigliout the year, as wanted ; if the demand for 
it were uniform and strong, about the same quantity 
being required for use in every equal period of time ; 
if no large " x)lant," or machinery, or great amount 
of capital in other forms, were required for its pro- 
duction ; if the producers of that commodity had an 
easy resort to occupations in which other commodi- 
ties were produced, and if, in turn, x^roducers in 
other occupations could readily and successfully 
take up the j)roduction of the commodity in ques- 
tion, should occasion seem to require, then the jirice 
of that commodity would, at any time, be close to 
the cost of its x^roduction, by which we are to under- 
stand not the average cost of the whole supply, but 
the cost of that part which was produced at the 
greatest disadvantage. 

That price would exx3ress the final utility of the 
commodity in question, that is, the utility of the 
X^ortion which, at the price, it was just worth the 
consumer's while to purchase. That x^rice would 
also express the sum of the efforts and abstinences 
of those individual x^i'oducers wdio brought forth 
this commodity under the least favorable conditions, 
of all who contributed to the sux^x^ly- Inasmuch as 
this price is to be x^aid alike by all purchasers of 
this commodity, it follows that those who have x^ro- 
d.uced it under more favorable conditions will ob- 
tain a remuneration which will rex^resent more than 
the sum of their individual efforts and abstinences. 

A x^rice which corresx3onds closely to the cost of 
production may be called the Normal Price. 

100. Market Price. —Inasmuch as the conditions re- 
cited in the foregoing x^aragraph are never fully 



80 POLITICAL ECONOMY. 

realized, there is for every commodity, in every 
market, a market price which differs more or less 
widely from the normal price. 

This market price always measures the final utility 
of the commodity, that is, the utility of it to the 
person to whom it is just worth while to buy of it, 
at that price ; otherwise, that person would either 
not buy, which, by leaving a portion of the supply 
untaken would determine a new and lower price, at 
which he would buy ; or, he would buy more of it, 
which, by adding to the demand, the supply re- 
maining the same, would determine a new and high- 
er price. 

But while market price must always measure the 
utility of the commodity to the last purchaser, that 
is, the person to whom it is just worth while to buy 
of it at that price ; market price does not always, 
like normal price, measure the efforts and absti- 
nences of the last producer, that is, the person pro- 
ducing under the greatest disadvantage, to whom 
therefore, it is only just worth while to produce at 
that price. It is in this latter respect that market 
price differs from normal price. 

101. Relation of Market Price to Normal Price.— 
The causes which make market price differ from 
normal price are various, and the illustration of 
them might be extended indefinitely. They may be 
grouped as follows : 

I. The existence of a stock. In the case of most 
commodities a considerable stock always exists — a 
fact which profoundly influences market price. 

102. Distinction between the Stock and the Supply. 
— The stock of any article in existence, at any time. 



MARKET PRICE. 81 

must not be confounded with the supply of that ar- 
ticle, considered as a commodity in the market. By 
the word supply, we express the quantity of a com- 
modity offered at any given price. At one price the 
supply may be but a small fraction of the stock — a 
phenomenon frequently observed in every market ; 
at successively higher prices, larger and larger por- 
tions of the stock would be offered, that is, would 
come to constitute the su^Dply — until a certain price 
would take off the entire stock. 

Indeed, the supply may even become greater than 
the stock, under a highly speculative organization 
of trade. Thus, in the grain or cotton market, or 
in the market for railway shares or government 
bonds, brokers daily offer to sell and contract to de- 
liver vast amounts of the several commodities in 
which they deal, but of which, perhaps, they j)os- 
sess little or none at all. Sometimes it hapj)en8 that 
those who are offering such commodities are en- 
trapped by a combination of purchasers, called a 
"corner,-' into contracts to deliver, on a certain 
day, more, perhaxDS many times more, than the en- 
tire quantity in existence. In such a case, the suj)- 
ply is still the amount offered at the price. This it 
is, and not the stock, which, taken in connection 
with the demand for the commodity, determines the 
price. 

103. Fluctuations in Production The necessity in 

some cases, the usage in others, of meeting the de- 
mand from a stock, and not out of the amount of 
daily production, causes market price to diverge 
from normal price, through excess or dehciency of 
production, In order that there may be wheat. 



82 POLITICAL ECONOMY. 

three millions of persons, more or fewer, in the 
United States, plant the grain many months previ- 
ous to the anticipated consumption of the wheat by 
the miller and tlie baker. 

These persons break up the land and sow the seed 
without any mutual understanding as to the extent 
of their operations. Each is governed, for himself, 
by a notion more or less vague, as to the x)r(fbable 
demand for wheat after his crop shall have been 
harvested. It is not at all a matter of certainty that 
the mistakes in calculation of one farmer will offset 
those of another. On the contrary, there is a very 
strong tendency in the errors of producers to accu- 
mulate all on one or the other side of the line of 
equable production. 

If the price of wheat, for instance, has, owing to 
a deficient supply, been high, almost all producers 
will be found, the next year, largely planting wheat. 
This is likely to produce a surplus which will per- 
haps bring down the price below the average, where- 
upon farmers, with almost as much unanimity as in 
the former case, will, the next year, diminish their 
operations in this direction. The producers who are 
sagacious enough to look about them and say : 0th - 
ers are planting wheat freely ; therefore, I will 
plant something besides wheat, any thing, indeed, 
but wheat, are highly exceptional. In productive 
industry it is the rule that men go in droves ; act un- 
der common impulses, with the result of causing 
excess and deficiency to alternate with great rapid- 
ity and often great violence. This is almost equally 
true of merchants and manufacturers and bankers. 
The select few who have the coolness and the sense 



MARKET PRICE. 83 

to buy when others are most eager to sell, and to 
sell when others are most eager to buy, reap rich 
harvests of gain. 

104. Substitution of one Commodity for Another in 
Use. — The influence upon price of an excess or cle- 
liciency in the stock of a commodity may be greatly 
diminished through the tendency to substitute one 
article for another in use. Thus, the cereals are, 
to a great extent, substituted for each other ; 
one kind of meat for another, and even bread for 
meat, or meat for bread, in the case of a marked 
deficiency of one or the other. The result of such 
substitution of one commodity for another, is 
to raise the jorice of the substituted article, and 
to prevent the price of the article for which it is 
substituted from rising as high as it otherwise 
would. The two commodities are thus, for the 
time, and in a degree, joined together in price; a 
mutual dependency is established between them. 

105. Liability to Deterioration — The influence upon 
market price of an excess in the stock of any com- 
modity is greatly controlled b}^ its liability, or non- 
liability, to deterioration. In the case of some com- 
modities, the variations in price due to this liability 
are such as to make it appear that x)rice has cut 
itself wholly clear from the cost of production, or 
the cost of reproduction. Thus, in fish markets, 
the price of a fish might have been a shilling when 
the market opened at 5 o'clock in the morning, 
eightpence at 10 o'clock, six]3ence by noon, while 
at three or four o'clock in the afternoon one could 
have it on his own terms. In the same way, straw- 
berries and peaches are often sold on Saturday night 



84 POLITICAL ECONOMY. 

at one-half or one-tliird the price of the morn- 
ing. ' - 

The necessity of storage, in the case of a post- 
poned sale, has often the same influence on the 
price of a commodity as liability to deterioration. 

106. II.— Organization of Industry and Existence of 
Plant. — A second cause which makes market price 
to differ from normal price is found in the organ- 
ization of industry and the existence of machinery 
and "plant." Laborers and capitalists, in vast 
bodies, being committed to production in certain 
lines, may be comx)elled to go on producing, even 
though market price, measuring the final utility of 
their product to the consumer, has ceased to afford a 
proper remuneration for their efforts and abstinence. 

107. III.— Customary Price. — Another cause which 
makes market to differ from normal price, is the 
force of custom. We owe the existence of a cus- 
tomary price, in some things to the power of public 
opinion, which determines that there shall be a 
stated, well-known price for certain services and 
certain commodities ; and, in other things, to habit 
or the mental inertia of purchasers. 

Thus, in the former case, public opinion would 
not tolerate varying and uncertain prices of admis- 
sion to places of public amusement, varying and 
uncertain tolls over bridges or fares on public con- 
veyances, varying and uncertain fees for the per- 
formance of certain necessary services, such as those 
connected with physical comfort, the preservation 
of life, or the burial of the dead. 

Where public opinion cannot be trusted to estab- 
lish a customary price, in cases like the above, the 



PRICE AND HABIT. '" 85 

law generally enters and fixes the rates at wliicli 
commodities and services shall be sold. Of course; 
the prices paid mnst be sufficient to make it worth 
while to keep up the service, whether of the apoth- 
ecary, the iDhysician, the ferryman, the actor or the 
opera singer. 

108. Influence of Habit and Mental Inertia upon 
Price. — Far beyond the range of customary price 
in the limited class of cases above referred 
to is the effect of habit and the mental 
inertia of the purchasing body, in restraining, 
or wholly rex)ressing, the movements of price, 
where a sufficient economic reason for such move- 
ment exists. In the former class of cases, the seller 
consciously submits to a restraint upon his freedom 
of action Imposed from without, viz., by x^ublic 
opinion or law. In the far wider field now in con- 
templation, bnyers and sellers are left perfectly free, 
so far as outside influence is concerned, but are 
constrained, in a higher or lower degree, by the 
laws of their mental constitution. 

No human being ever, for a moment, escapes 
from the force of habit, but the degrees in which 
men are thus bound differ widely. . A capability of 
taking the initiative in action, mental courage and 
activity, freedom from fear and superstition, a read- 
iness to meet new conditions and perhaps even a 
pleasure in encountering risks and odds, are among 
the fruits of culture ; they become an inheritance in 
families ; they even become a characteristic of na- 
tions and races. 

109. The Moral and Intellectual Elements of Demand 
and Supply.— Our definitions of demand and supply, 



S6 POLITICAL ECONOMY. 

as respectively the qnantity of any given article 
which purchasers stand ready to take at a certain 
price, and the qnantity which producers or holders 
stand ready to deliver at the same price, clearly rec- 
ognize a moral and intellectual element in demand 
and in supply. "Stand ready" to take or to de- 
liver. Any thing which affects that readiness, is, 
then, an element of demand or of supply. 

In all the variations between normal and market 
price, the moral and intellectual elements are impor- 
tant factors. More or less, false apprehensions enter 
to affect the demand for and the supjjly of every 
article in every condition of the market ; though the 
influence of this cause at one period will be greater 
than at others. 

110. Retail Contrasted with Wholesale Trade.— The 
foregoing holds good even of the wholesale markets, 
where the parties who buy and sell commodities are 
all picked and skilled men, long familiar with the 
conditions of the articles in which they deal, with 
large opportunities, whether by price-currents, news- 
paper, post or telegraph, or by special and secret in- 
quiry, to ascertain all the facts bearing on the ques- 
tion, at what i^rice they should buy or sell. In re- 
tail trade, the moral and intellectual elements of 
demand and supply play a much more important 
part. 

On one side is the merchant, a man of more than 
average intelligence and information, whose business 
it is to buy and sell ; v/ho by frequent resort to the 
wholesale dealer is kept advised of the conditions of 
the market : on the other is the customer, often 
ignorant in the widest sense of the word, always and 



RETAIL TRADE. 8^ 

necessarily ignorant in the special sense of being nn- 
acquainted with the conditions at the time prevail- 
ing which shonld determine price. The merchant, 
again, is the possessor of caj)ital, and can wait to 
dispose of his goods at the best time ; the customer, 
on the other hand, is generally in urgent need of 
commodities for immediate use, and frequently x)oor, 
so that he must buy in small quantities. 

111. The Friction of Retail Trade. — From the igno- 
rance and inertness of the "customer" arises what 
may be called the Friction of Retail Trade. " Retail 
price," says Mr. Mill, " the price paid by the actual 
consumer, seems to feel slowly and imx^erfectly the 
effect of competition, and where competition does 
exist, it often, instead of lowering prices, merely 
divides the gain among a greater number of dealers. 
It is only in the great centers of business that retail 
transactions have been chiefly or even much deter- 
mined by com]3etition. Elsewhere it rather acts, 
when it acts at all, as an occasional disturbing in- 
fluence. The habitual regulator is custom, modified 
from time to time, by notions existing in the minds 
of purchasers and sellers, of some kind of equity or 
justice." 

112. Criticism of this View.— I am disposed to think 
that this eminent economist somewhat overrates the 
disability under which the customer suffers in retail 
trade ; and, secondly, that the inference he draws 
from the undoubted fact of the general prevalence 
of a customary price, viz., that this shows that com- 
petition is not, in any proper sense, the regulator 
of such trade, is not fully justified. 

To take an analogous case, let one look around 



88 POLITICAL ECONOMT. 

him, in any higlily organized community, and lie 
will see very little disjjlay of force in compelling 
proper tilings to be done, or in repressing acts in- 
jurious to society. He will see on every side men 
doing just and decent and even courteous and kindly 
tilings, respecting the rights of others and making 
use inoffensively of their own powers and privileges, 
just as if all this were natural and pleasant to them, 
as, indeed it has, to a great degree, become. These 
actions appear to be spontaneous and instinctive. 
Yet if that power which in every civilized state is 
always at hand, however veiled or disguised, to pro- 
tect person and jjroperty, to repress lawlessness and 
to punish crime, were once withdrawn, society would 
speedily be transformed, and the occurrence of every 
form of rapine and violence would instruct the 
observer that, behind the fairest show of order, right 
dealing and courtesy, stands the armed force of the 
community. 

So, while, within certain limits, competition seems 
to disappear wholly from retail trade, yet the eco- 
nomic forces always lie beneath, as the bed-rock 
below which the effects of moral forces cannot go. 
Let the cost of an article rise above the "customary 
price," and merchants will make an advance upon 
that price, in spite of custom. Let merchants 
demand an utterly exorbitant price, and competition 
will spring up, even among the least intelligent and 
least enterprising buyers. 



CHAPTER 11. 

The Theory of Internatiois'al Exchanges. 

113. Mill's Theory of International Trade .—We have 
thus far written of exchange, as if it were a matter 
wholl}^ between individuals of the same community, 
or perhaps of neighboring communities. Is any 
modiiication of our conchisions required, when 
exchange is conceived to be carried on between dis- 
tant communities, belonging, j)ei'liaps, to distinct 
countries ? 

The accepted doctrine on this subject is that of 
Mr. John Stuart Mill, wliicli I will state mainly in 
his own w^ords. 

The causes which occasion a commodity to be 
brought from a distance, instead of being produced 
as near as possible to the market where it is to be 
sold for consumption, are usually conceived in a 
rather superficial manner. Some things it is phys- 
ically impossible to produce except in particular 
circumstances of heat, soil, water, or atniosx)here. 
But there are many things which, though they could 
be produced at home without difficulty and in any 
quantity, are yet imported from a distance. 

The explanation which would probably be given 
of this would be, that it is cheaper to import than to 
produce them ; and this is the true reason. But-this 
reason itself requires that a reason be given for it. 
Of two things produced in the same place, if one is 



00 POLITICAL BGOmMt. 

cheaper fclian the other, the reason is that it can be 
produced with less labor and capital, or, in a word, 
at less cost. Is this also the reason as between 
things produced in different places? Are things 
never im]3orted but from places where they can be 
produced with less labor (or less of the other ele- 
ment of cost, time), than in the place to which they 
a.re brought? 

Surel3^ they are. A thing may sometimes be sold 
cheax)er by being produced in some other place than 
at that at which it can be produced with the smallest 
amount of labor and abstinence. England might 
import corn from Poland and pay for it in cloth, 
even though she had a decided advantage over 
Poland in the production of both cloth and corn. 
England might send cottons to Portugal, although 
Portugal might be able to produce cottoDS with a 
less amount of labor and capital than England 

could. 

114. Distinction Between Domestic and Foreign 
Trade.— This could not happen between adjacent 
places. If the north bank of the Thames possessed 
an advantage over the south bank in the production 
of shoes, no shoes would be produced on the south 
side ; the shoemakers would remove themselves and 
their capitals to the north bank, or would have 
established themselves there originally. But 
between distant places, and especially between dif- 
ferent countries, profits may continue different ; 
because persons do not usually remove themselves 
or their capitals to a distant place, without a very 
strong motive. 

Mr. Mill then notes that a tendency is visible 



INTERNATIONAL TRADE. 91 

towards a freer inigration of labor and capital to 
take advantage of better opjDortunities of emi3loy- 
inent and investment. There is so much greater 
similarity of n)anners and institutions than formerly, 
and so much less alienation of feeling, among the 
more civilized countries, that both population and 
capital will now move from one of those countries 
to another, on much less temptation than heretofore. 
But there are still extraordinary differences, both 
of wages and of profits, between different x)arts of 
the world. 

115. Why we Trade with Foreign Countries.— Under 
these conditions, Mr. Mill inquires what it is that 
determines the interchange of commodities between 
two countries or two distant places. He answers, it 
is not a difference in the absolute costof j)rodnction, 
but a difference in the comparative cost. It might 
be for the advantage of England to procure iron 
from Sweden in exchange for cottons, even though 
the mines of England, a^ well as lier factories, were 
more productive than those of Sweden ; for, he says, 
' ' if we have an advantage of one-half in cottons, 
and only an advantage of a quarter in iron, and 
could sell our cottons to Sweden at the price Sweden 
must pay for them if she produced them herself, we 
should obtain our iron with an advantage of one- 
half, as well as our cottons. We may often, by 
trading with foreigners, obtain their commodities at 
a smaller expense of labor and capital than they 
cost to the foreigners themselves. The bargain is 
still advantageous to the foreigner, because the com- 
modity which he receives in exchange, though it 
Jias cost us less, would have cost him more," 



92 POLITICAL ECONOMY, 

116. International Values.— Trade arising between 
any two countries, and tlie subject matter of trade — 
the commodities to be bought and sold between the 
two countries — being selected as has been seen, 
with reference not to the absolute^ but to the com- 
parative cost of production, Mr. Mill proceeds to 
inquire how international values are determined. 

The values of commodities produced in the same 
place, Mr. Mill remarks, or in places sufficiently 
adjacent for capital to move freely between them, 
let us say of commodities produced in the same 
country, depend upon their cost of production. But 
the value of a commodity brought from a distant 
place, and especially from a foreign country, does 
not depend upon its cost of production in the place 
whence it comes. On what, then, does it depend ? 

The value of a thing in any place depends on the 
cost of its acquisition in that place ; which, in the 
case of an imported article, means the cost of pro- 
duction of the tiling wliicli is exported to pay for it. 

For example, if England imports wine from Spain, 
giving for every pipe of wine a bale of cloth, the 
exchange value of a pipe of wine in England will 
depend, not upon what the production of the wine 
may have cost in Portugal, but upon what the j)ro- 
duction of the cloth has cost in England. Though 
the wine may have cost in Portugal the equivalent 
of only ten days' labor, yet, if the cloth costs in 
England twenty days' labor, the wine, when brought 
to England, will exchange for the produce of twenty 
days' English labor, plus the cost of carriage, etc. 

The value, then, in any country, of a foreign com- 
modity, depends on the quantity of home produce 



INTERNATIONAL VALUES. 93 

wliich musfc be given to the foreign country in ex- 
change for it. In other words, the values of foreign 
commodities depend on the terms of international 
exchange. What, then, do these depend ux)on? 
What is it, which, in the case supposed, causes a 
pipe of wine from Spain to be exchanged with 
England for exactly tliat quantity of cloth ? 

We have seen that it is not their cost of jjr educ- 
tion. If the cloth and wine were both made in 
Spain, they would exchange at their cost of produc- 
tion in Spain ; if they were both made in England, 
they would exchange at their cost of production in 
England ; but, all the cloth being made in England, 
and all the wine in Spain, they are in circumstances 
to which we have already determined that the 
law of cost of production is not applicable. We 
must accordingly, says Mr. Mill, fall back upon an 
antecedent law, that of supply and demand, and in 
this he finds the solution of the difiiculty. 

117. The Equation of International Demand.— After 
an extended illustration of the terms of interna- 
tional exchange, Mr. Mill issues with what he terms 
the Equation of International Demand, which is 
thus stated by Prof. Cairnes : " International values 
are governed by the reciprocal demand of commer- 
cial countries for each other's productions, or, more 
precisely, by the demand of each country for the pro- 
ductions of all other countries, as against the 
demand of all other countries for what it produces ; 
the result of this play of forces being that, on the 
whole, the exports of each country discharge its 
liabilities (of which the principa.1 are on account of 
its imports) towards all "other countries. Whatever 



94 POLITICAL ECONOMY. 

be the exclianging proportions — or, let us say, what- 
ever be the state of relative prices — in different conn- 
tries, which is requisite to secure this result, those 
exchanging proportions, that state of relative prices 
will become normal — will furnish the central point 
towards which the fluctuations of international prices 
will gravitate, the rule to which, in the long run, 
they will conform." 

118. Professor Cairnes's Theory of Non-Competing 
Groups.— Thirty years after Mr. Mill brought out his 
law of "international values," by which was meant 
the exchanging proportions existing between com- 
munities, whether nations or not, which are so far 
separated that labor and capital do not in fact pass 
freely between them, Prof. Cairnes gave that law a 
notal3le extension, by pointing out its applicability 
to ' ' non- competing groups " within the same country 
or industrial district. 

"What we find," he says, "is, in effect, not a 
whole population competing indiscriminately for all 
occupations, but a series of industrial layers, super- 
posed upon one another, within each of which the 
various candidates for employment possess a real 
and effective power of selection, while those occupy- 
ing the several strata are, for all purposes of effect- 
ive competition, practically isolated from each 
other." 

After stating Mr. Mill's "Equation of Interna- 
tional Demand," Prof. Cairnes goes on to say : 
" What we have now to consider is the mode in 
which this principle operates in the case of the 
non-competing groups of domestic trade. 

^ ' And, first, in what sense are we to understand 



NON-COMPETING GROUPS. 95 

'reciprocal demand,' as aj^plied to non-competing 
industrial groups % Manifestly, in conformity with 
the analogy of the international case, as the demand 
of each group for the products of all other groux3s 
for which this group produces. 

''How, again, are we to measure such demand? 
Again, I say, in conformity with the same analogy, 
by the quantity of the products of each groujD avail- 
able for tlie purchase of the i3roducts of other grou]3s ; 
Avhile the products of other groups available for the 
purchase of the jproducts of any given group will 
measure their demand for the products of that 
group. 

'' Lastly, how are we to understand the ' Equation 
of Demand,' as applied to non- competing groups \ 
Still following the international analogy, I reply, as 
such a state of exchanging proportions amongst the 
products of the various groups — or, let us say, as such 
a state of relative prices amongst such products, as 
shall enable that jDortion of the products of each 
group which is applied to the purchase of the 
l)roducts of all other groups, to discharge its liabili- 
ties towards those other groups. 

"Such is the nature of 'reciprocal demand,' and 
its mode of action as between the non-competing 
groups of domestic industry. 

"Reciprocal International Demand determines 
the average level of prices throughout the entire 
trade of each commercial country in relation to that 
prevailing in other countries in commercial connec- 
tion with it ; Reciprocal Domestic Demand deter- 
mines certain minor relative averages extending over 
classes of articles, the products of non-competing in- 



96 POLITICAL ECONOMY. 

clustrial groups ; wliile Cost of Production acts 
upon particular commodities, and, in each case, 
witliin tlie range of industrial competition, deter- 
mines their relative prices. 

"The actual price, therefore, of any given com- 
modity will, it is evident, be the composite result of 
the combined action of these several agencies." 



CHAPTER III. 
Money and its Yalue. 

119. Exchange Arises out of the Division of Labor.— 
Men become the producers of that wliicli they expect 
to consume but in part, if at all. Their choice as to 
what they shall x)rocluce, ceases to be determined by 
considerations affecting their own personal Avants, 
and comes to be determined mainly, if not wholly, 
by considerations aifecting their abilities and ai^ti- 
tudes as industrial agents. They no longer produce 
that which they, desire to eat, drink or wear, or at 
least they no longer produce it for that reason alone ; 
but they produce that one among many things 
known to the market which they can produce to the 
best advantage, let who will, in time, eat, drink or 
wear it. Their own wants they look to see, in turn, 
satisiied by the labor of others, each individual of 
the community working "after his kind," doing that 
which he can do best. 

To the market all producers bring their several 
products, or such x^art thereof as they do not care 
individually to consume. From the market each 
late producer, now become a consumer, carries away 
that which he is to eat, drink, or wear, or otherwise 
enjoy. In the market is done that which we call 
exchange. 

The economic function of exchange is to bring 
producers and consumers together, and thus allow 



98 POLITICAL ECONOMY. 

the division of labor to be carried as far as it will 
serve to increase production. The division of labor 
has no economic virtue except so far as it increases 
production. When that point has been reached, a 
further subdivision of occupations and employments 
would be useless, or of merely curious interest. 

Exchange, in turn, has no economic virtue except 
as it allows the division of labor to be carried out. 
Its sole function is to enable each species of wealth, 
each article known to the market, to be produced in 
the place and by the person where and by whom it 
can be produced to the greatest advantage. To 
speak of exchange as itself productive of wealth, or, 
to put it concretely, to speak of trade and transpor- 
tation as benefiting a community, involves a mis- 
conception. 

120. The Economic Function of Money.— In its func- 
tion of bringing producers and consumers together, 
exchange discovers the need of the great agent of 
which we are about to speak — Money. 

Just as the occasion for exchange arises out of the 
fact of the division of labor, and as the economic 
efficiency of exchange is limited to that occasion, 
so the need of money arises solely out of the fact of 
exchange, and the economic efficiency of money is 
limited strictly to the occasion for exchange. The 
interests of a community require as much exchang- 
ing as will secure that division of labor which will 
achieve the highest productiveness of land, laboi' 
and capital, and they require no more exchanging 
than this. They require as much money as will 
enable that amount of exchanging to be effected 
with the least effort and with the greatest assurance 



THE MONEY EXjrNGTIOm 99 

of a transfer of real equivalents ; and they require 
no more money than this. 

But how does money facilitate those exchanges 
which it is for the interest of society to have effect- 
ed ? Just what is the economic function of 
money ? 

121. How does Money facilitate Exchange ?— Money 
facilitates exchanges by dispensing with that double 
coincidence^ of loants and of possessions^ which 
barter, or exchange without the use of money, in- 
volves. We have seen that, so far as the division of 
labor is carried out, men cease to x^roduce all or even 
the greater part of what they wish to consume ; but, 
producing that which they can produce to the best 
advantage, look to others for those j)articular arti- 
cles which are required for the supply of their indi- 
vidual wants. The producer and the would-be con- 
sumer of^^each article, therefore, must get together, 
somehow. 

That each x3roducer for himself should find some 
person who has what he wants and, at the same 
time, w^ants what he has, would involve very round- 
about exchanges, occupying a great deal of time, 
and occasioning much delay, and frequent disap- 
pointments. The bootmaker who wanted a hat for 
his own use might find many persons who would be 
glad to get pairs of boots, but had no hats to give in 
exchange, and several persons who had hats, indeed, 
to sell, but were already supplied with boots, be- 
fore he found one person who both had hats and 
lacked boots. 

And, moreover, when that person were found, a 
further difficulty might arise from the failure 



100 POLITICAL ECONOMY, 

of an exact equivalency between the two articles to 
be exchanged. A x^air of boots might be worth more 
than a hat : perhaps three pairs of boots might be 
worth four hats. Yet the bootmaker wants but one 
hat ; the hatter wants but one pair of boots. It is 
evident that things would soon get into a fearful 
muddle, this way. 

But if, by general consent, formal or implied, the 
j)roducers of the community should hit upon one 
article w^hich they would all agree to take in ex- 
change for whatever they wished to sell, a vast 
saving of time and labor, of annoyance and disap- 
pointment, would be effected, especially if the arti- 
cle so taken should be one, say, wheat, susceptible 
of minute division, without loss of utility. 

122. Money, the Medium of Exchange.— What shall 
we call the function which the wheat would in this 
case perform? Clearly it is something altogether 
beyond and in addition to its ordinary natural func- 
tion, as wheat, which is simply to be made into 
flour, to be, in turn, made into bread. In the use 
proposed, the wheat would serve another purpose. 
What shall we call that purpose ? 

The function performed by the wheat, in the in- 
stance given, is that of a Medium of Exchange. The 
wheat is no longer an end, as when used for food, 
but a medium, or means to an end, which end may 
be boots, or hats, or groceries, or what not. 

jSTow, this is the Money function. Money is the 
medium of exchange. Whatever performs this func- 
tion, does this work, is money, no matter what it is 
made of, and no matter how it came to be a medium 
at first, or why it continues to be such. So long as, 



THE MONET FUNCTIOK 101 

in any community, there is an article which all pro- 
ducers take freely and as a matter of course, in ex- 
change for whatever they have to sell, instead of 
looking about, at the time, for the jDarticular things 
they themselves wish to consume, that article is 
money, be it white, yellow or black, hard or soft, 
animal, vegetable or mineral in its composition. 

There is no other test of money than this. That 
which does the money-work is the money-thing. It 
may do this -well ; it may do this ill. It may be 
good money ; it may be bad money — but it is money 
all the same. 

123. Universal Acceptability of Money.— We said, all 
producers, since it is not enough that an article is 
extensively used in exchange, to constitute it money. 
Bank checks are used in very numerous and 
very important transactions, yet are not money, 
because only a comparatively small number of 
people take them for what they have to sell ; and 
those who do take checks only take them from per- 
sons whose x)ecuniary responsibility they are assured 
of ; and when they take checks, they know that 
they will not be able to "]3ass" them anywhere and 
every where, but only at banks or at stores where 
they are themselves personally known. 

It is essential to money that its acceptability 
should be so nearly universal that j)ractically every 
lierson in the community who has any product or 
service to dispose of will freely and of preference 
take this thing, money, instead of the particular 
]Droducts or services which he may individually re- 
quire from others, being well assured that, with 
money, he will unfailingly obtain whatever he shall 



103 POLITICAL ECONOMY. 

desire, in form and amount, and at times to suit his 
wants. When any article, no matter what its sub- 
stance or form, acquires this degree of acceptability, 
no matter how obtained or how retained, that article 
becomes money, and remains money while that con- 
dition continues. 

124. Money and Civilization.— It is evident that the 
introduction of money, even in a very primitive state 
of industrial society, vastly facilitates exchanges, 
and renders it easy to . carry out the division of 
labor. It is further evident that the use of money 
is absolutely a condition precedent to an advanced 
state of industrial society. The division of labor 
could not without it be carried as far as is involved 
in complicated manufactures and extended com- 
merce, 

" It has been wisely said," remarks M. Chevalier, 
" that no machine economizes labor like money, and 
its adoption has been likened to the discovery of 
letters." 

125. Historical Forms of Money.— We have said that 
any article which acquires a certain degree of accept- 
ability throughout the community, would thereby 
become money, whatever its material or form. Yet 
material and even form may have much to do with 
securing to any given article, at any given time, tlie 
requisite degree of acceptability. Rock salt long 
served the Abyssinians as money ; rice, the dwellers 
on the Coromandel shore ; cacoa, the aboriginal 
Mexicans ; olive oil, the inhabitants of the Ionian 
islands ; wampum, the early New Englanders ; 
tobacco, the early Yirginians and Marylanders ; tea, 
compressed into small cakes, the Russians ; dates, 



THE METALS AS MONET. 103 

the savages of the African oases ; beaver and seal- 
skins, the peoples of many northern lands. Wheat, 
cattle and sheep have also been extensively em- 
ployed as money, alike by the early Greeks, by the 
Romans who conquered the Greeks, and by the 
Teutons who conquered the Romans. 

126. The Metals as Money.— But of all substances, 
the metals have enjoyed the widest use as money, 
from a very remote period. 

From its numerous and important uses in the 
domestic arts, in the chase, and in warfare, iron 
was the subject of such wide and constant de- 
mand as to make its further use, as the gen- 
eral medium of exchange, i.e.,- as money, very sim- 
ple and natural. The art of mining being in early 
times very crude, small quantities of iron represented 
a large amount of labor, and thus contained a high 
purchasing power. Moreover, in comparison with 
wheat, cattle, and many other primitive forms of 
money, iron cost little or nothing to keep and was but 
little subject to waste, while a given mass could easily 
be divided into pieces of any required dimensions, 
which could again be reunited, by fusion, or by 
weldino; when heated. The monev of Lacedemon 
was of iron ; the Swedes used money of this metal 
during and after the exhausting wars of Charles 
XII. ; and iron is still reported to be ^ used by the 
inhabitants of Senegambia. 

Lead was extensively employed as money by the 
early Romans and the early English, and is still 
used in the same way by the Burmese. Tin was 
used by the Mexicans as money ; was long so em- 
ployed in Sweden, in long, flat blocks, and is even 



104 POLITICAL ECONOMY. 

now a medium of excliange among the Chinese and 
Malays and in the Prince of Wales Land. 

But more than iron, tin or lead, has coj)per, in 
the later centuries, been used as money. Having, 
from its cost of production, a high value for its 
bulk, it came to supersede iron in this use, w^hen 
the latter metal became too cheap to form a con- 
venient money for the purposes of ordinary exchange. 

Platinum was for a brief period, between 1828 
and 1845, used as money in Russia, where that 
metal is produced ; but the great difficulty of ren- 
dering platinum, now from ingots into coin, and 
again from coin into ingots, prevented the success 
of this experiment. 

127. The Precious Metals.— All the other metals, 
however, pale before the light of two transcendent 
substances, the Precious Metals,^ so-called, silver 
and gold. Having numerous important uses in the 
industrial arts ; possessing the highest adaptation 
for the purposes of ornament and decoration, these 
metals have always and every where exerted, be- 
yond all other objects of human desire, a strange, a 
mysterious fascination upon the minds of men, 
while their adaptation to the purposes of coinage, 
through their ductility and fusibility, and their 
adaptation to the purposes of circulation, in being 
nearly imperishable so far as accident or the action 
of the elements is concerned, have contributed to 
make them almost the perfect money. 

* Not the most rare or costly of all. Several metals are more val- 
uable even than gold ; but these are metals found in extremely small 
quantities, too rare to meet the requirements of a general medium of 
exchange. 



COINAGR 105 

128. Coinage.— Under tlie title, coinage, we may 
take acconnt of all inetliods of determining, for easy 
popular recognition, tlie quantity and quality of in- 
dividual portions of that whicli is used as money. 
It is in their adaptations to the art of the coiner that 
the metals, and especially the precious metals, ex- 
hibit their most marked qualifications for use as 
money. 

The metal is melted, and in that state is brought 
to the required degree of purity, or ^'fineness." It 
is then cast into ingots, and by successive mechani- 
cal processes, with machinery of great delicacy and 
power, drawn out to the required thickness, cut into 
planchets, "milled" around the edges, and stamped 
on both sides with devices expressive both of the 
sovereignty of the nation under whose authority the 
coins are struck, and of the quality and quantity of 
the metal contained. 

Coinage has generally been regarded as an act of 
sovereignty, and the counterfeiting of the coin has 
widely been X3unished as treason. So important is 
the money-function, so strong is the tendency to 
abuse the privilege of coining, so helpless are the 
mass of the community, especially the poor and 
economically weak, under a corrupted coinage, that, 
even in free governments, where roj^al prerogative 
is not known, the private minting of money is pun- 
ished by grave penalties. That coins shall fully 
perform their office as money, they must be taken 
readily, without suspicion, after, at most, a brief 
inspection such as even the ignorant and inexjDert 
can give. 

129. What Determines the Value of Money?— The 



106 POLITICAL EGONOMt. 

value of money, like the value of any thing else, is 
purely a question of demand and supply. The cost 
of producing money is only imjjortant as affecting 
the supply. Limit the supply,^ and it does not 
matter whether there be any cost of production or 
not. The advantage of taking that for use as money 
which has an appreciable, definite, and, as far as 
may be, constant cost of production, is found in 
the fact that the supply of such money will be 
limited by natural causes, instead of being left to be 
regulated by law or convention or accident. 

130. What is the Demand for Money ?— The demand 
for money is the occasion for the use of money in 
effecting exchanges : in other words, it is the amount 
of money-work to be done. 

This is not determined by the gross volume of the 
wealth of the community, since all that wealth is 
not to be, in fact, exchanged. For a similar reason, 
it is not determined by the amount of the annual 
production. 

It is not determined even by the volume of prod- 
ucts to be exchanged, inasmuch as some classes of 
these may require to be exchanged several times, 
and some but once. 

131. The Money-Demand a Reality.— Not the less is 
the demand for money a reality. In every com- 
munity, though in some more than others, goods 
are offered for money. Men seek money, having in 
their hands wherewithal to pay for it. Some of 



* I have already quoted the remark of Prof. Senior that " any- 
other cause limiting supply is just as efficient a cause of value in an 
article, as the necessity of labor to its production." 



THE MONEY DEMAND. 107 

tliem must have money, whatever it cost to get it ; 
with others any appreciable increase in tiie difficulty 
of getting money, or any appreciable doubt as to 
the "goodness" of that which is circulating in the 
community, does away with the disposition to ob- 
tain it, drives them to barter, and thus destroys a 
portion of the demand for money. 

132. Effect of Discredit on the Money-Demand.— 
Thus, if the money of a country be oi:)enly 
discredited, as in France prior to and during 
the Hundred Years' War, and, again, during 
the Revolutionary Epoch ; in England, under 
Henry YIII. and the Protector Somerset ; in 
the United States, during the circulation of the 
so-called Continental currency ; and in Italy, through 
many dreary periods of her history, men may not 
only resort increasingly to barter or to credit, as a 
means of avoiding the use of money, but such 
discredit of the coin or other circulating medium 
may become a force which will operate powerfully 
to modify and even to limit production, men pro- 
ducing fewer things and those different from what 
would have been produced under conditions more 
favorable to the division of labor and the consequent 
exchange of products. 

We see, thus, that the demand for money has no 
definite relation to the total wealth, or the annual 
product of a community, or even to the volume of 
products to be exchanged. The demand for money 
varies with the amount of money- work to be done, 
which, in turn, varies with the industrial organiza- 
tion of communities, with seasons, and with circum- 
stances innumerable. Not the less, however, as we 



108 POLITICAL ECONOMY. 

said, is the demand for money a real thing. Goods 
are offered for money ; and, with a given supply, the 
more goods are so offered, the higher will be the 
value of money — that is, prices will fall ; the fewer 
goods are offered, the lower will be the value of 
money — that is, prices will rise. 

133. Value and Price.— It will have been noticed 
that, in the foregoing paragrapli, I have used the 
word price as signifying the money- value of goods. 
As we stated in a previous chapter, value is the ge- 
neric term which expresses power-in-exchange. Price 
is power-in-exchange-fof-some-one-article. In a 
community where money is used, price commonly 
expresses power-in-exchange -for-money. Where 
nothing to the contrary is said or irtimated, the 
price of an article is understood to be the value of 
that article in terms of money— the amount of money 
it will command in exchange. 

134. What is the Supply of Money? — If such is the 
demand for money, what is the supply '\ It is 
the money-force available to do the money-work 
which the demand for money indicates as required 
to be done, in the given community, at the given 
time. 

The money^force, or the supply of money, is not 
measured by what is usually called the amount of 
money, that is, the number of gold dollars or bits of 
paper used as money, but is composed of two factors — 
the amount of money and the rapidity of circulation. 
" The nimble sixpence does the work of the slow 
shilling." 

The rapidity of circulation, of course, varies 
widely among different communities, according to 



THE MONEY BTJPPLY. 109 

the density of settlement, the prevailing occupations 
of the x^eople, the facilities for the transportation of 
freight and passengers, and other conditions. And 
the rapidity of circulation not only varies according 
to such conditions, but it varies from day to day, 
and hour to hour, with the state of trade and the 
temper of the public mind. 

135. The Money Supply a Reality. — But while the 
money-supply varies thus incessantly, it is none the 
less a real thing ; so real that, at any given time, an 
increase of the demand for money will enhance the 
value of money — that is, will lower prices ; and a de- 
crease in that demand will reduce the value of money 
— that is, will raise prices. 

To enhance the value of money is, of course, to 
give a larger purchasing power to each integral part 
of the circulating money — that is, to each piece or 
coin, and to any given number of pieces or coins. 
But if money purchases more of other things, other 
things, conversely, purchase less of money — that 
is, bear higher prices. 

136. International Distribution of Money.— We have 
seen that it is impossible to say what, at any time, in 
any community, is the demand for money, or the sup- 
ply of money. We have now to see that, with money 
having a natural cost of production, no one has any 
need to know, with a view to securing his own inter- 
est or that of the community, either how much 
money there is, or how much is needed. 

Let us suppose that, of two trading countries hav- 
ing the same kind of money, the amount in each, 
the number of pieces or coins, is such that, the rate 
of circulation being what it is, and the demand for 



110 POLITICAL ECONOMY, 

money wliat it is, the scale of prices ia the two 
countries precisely corresponds^ cost of transporta- 
tion of goods being, for the purposes of the illustra- 
tion, left out of account. Now let us suppose that, 
all other elements of the case remaining unchanged, 
the amount of money in one of these countries, A, 
is suddenly and largely increased, say, by the dis- 
covery of treasure or by the opening of new and re- 
markably productive mines. 

The supply of money in A having thus been in- 
creased, the value of money, as we have seen, must 
decline, that is, prices must rise. A given amount 
of money will purchase less of other things than 1 e- 
fore, which is equivalent to saying that other things 
will purchase more of money. 

Now, if goods will purchase more money in that 
country, the owners of goods of every description in 
the other trading country, B, will at once feel them- 
selves impelled by self-interest to send goods thither, 
to secure the benefit of the higher prices. 

137. And while every owner of goods in B is 
hurrying to get them to A, in order to take ad- 
vantage of the higher prices prevailing there, 
every holder of money in A is equally impelled 
to get it as quickly as possible to B, in order 
to take advantage of the low^er prices there. So 
it appears that the holders of goods in B are anx- 
ious to exchange goods for money in the markets 
of A, and the holders of money in A are equally 
anxious to exchange money for goods in the mark- 
ets of B. 

Where all parties are so fully agreed, the thing to 
be done is likely to be done quickly. Money 



TEE EXPORT OF MONEY. Ill 

flows from A to B until the equilibrium wliicli was 
disturbed has been restored, that is, until the gen- 
eral scale of prices is the same in both countries. 
After this, the two countries will continue to trade 
as before ; but each will keep its own money. A 
will 23ay for the cotton, rice and sugar of B with its 
own wheat, lumber, coal and ice. 

138. The Money Movement Automatic. — It will be 
observed that the movement of money which has 
been described was not due to any one discovering 
that A had more money than it needed, or than its 
]3roportional share. No statistician or banker an- 
nounced this result after computing the demand 
for money and the supjjly of money in A ; nor 
was the consent of any person, or any number of 
persons, obtained to the proposition to export money 
toB. 

The exchanges which restored the equilibrium of 
prices were due wholly to the action of individuals, 
moved by a view of their own interest. Not one of 
them cared, perhaps not one of them knew, whether 
money was in excess in A, or not, but each, finding 
that by sending his goods from B to A, or his money 
from A to B, he could secure a profit, contributed to 
the result. 

139. Picking or Selecting the Coin.— We have seen 
that any local excess of money, as between one 
country and another, immediately sets in motion 
forces which tend to restore the equilibrium. 

In the case of exportation, or the melting of 
coined money, due to local excess, what determines 
the selection of the coins to be exported or melted \ 
Is it purely a matter of chance, or does some dis- 



112 POLITICAL ECONOMY. 

tinct economic force enter to decide tliat cerfcain 
coins shall go and others stay 1 

140. Irregularities in the Coin.— In the process of 
coining, it is inevitable that differences should ex- 
ist between the coins which are the product of any 
one mint. A certain range of variation must be al 
lowed, and this is generally formulated by law, and 
is known as the " tolerance" of the mint. 

But even were all coins issued of exact uniformi- 
ty, the wide difference in the usage to which coins 
are subjected would soon make a difference in their 
weight. Some coins go early into hordes or depos- 
its ; others are worn down by almost continuous cir- 
culation ; others still are dealt with illegitimately 
by clipping, punching, and "sweating," till a con- 
siderable portion of their substance disappears. 

If, now, with a body of coin of unequal value, a 
demand for the money metal arises, for export or 
for use in the arts, the process of picking or select- 
ing coin will at once begin. All merchants and 
bankers dealing largely in coin will lay by those of 
full or nearly full weight, which come to their 
hands, and throw the lighter specimens back into 
circulation. 

This process of picking or selecting coin for ex- 
port or for melting, begins early in the history of 
such a demand as has been indicated, and proceeds 
steadily so long as that demand lasts. The opera- 
tion costs practically nothing, and the profit, where 
great numbers of coin are daily handled, is large 
and certain. Clerks and cashiers become so expert 
that they can tell light. coins by the touch, while, 
if doubt exists, a pair of adjusted scales will in 



GRESHAM'S LAW. 113 

an instant decide tlie question of full or under 
weight. 

141. Gresham's Law.— The observation of this pro- 
cess of picking or selecting coin has led to the state- 
ment of the economic theorem, known as Gresh- 
am's Law,"^ that "bad money always drives out 
good money." 

Thus baldly stated, as in most treatises it is, the 
theorem is false. That effect will not be produced 
unless the body of money thus composed of heavy 
and of light coins^ is itself in excess f of the needs 
of the community, as determined by the law of the 
territorial distribution of money, which has been 
stated and illustrated. 

142. The Value Denominator, usually called the Meas- 
ure of Value.— Thus far we have spoken of but one 
function of money, that of the Medium of Exchange, 
and we have written as if there were but one money 
function. This has been for the purpose of fixing 
the reader's attention strongly on the work of mon- 
ey, as the medium of exchange. 

In addition to the function of money as the me- 
dium of exchange, nearly all economists are agreed 
in recognizing another independent and co-ordi- 

* From Sir Thomas Gresham, founder of the Royal Exchange of 
London. 

fMr. Ricardo clearly expressed this necessary qualification of 
Gresham's Theorem. It is, he says, "a mistaken theory to suppose 
that guineas of 5 dwt. 8 grains, cannot circulate with guineas of 5 
dwt., or less. As they might be in such limited quantities that both 
the one and the other might actually pass in currency for a value 
equal to 5 dwt. 10 grains, there would be no temptation to withdraw 
either from circulation ; there would be a real profit in retainiui;- 
them." 



114 POLITICAL EGONOMt. 

nate function of money, viz., as a *' Measure of 
Value." 

^'A second difficulty," says Professor Jevons, 
"arises in barter. At what rate is any exchange to 
be made? In a state of barter, tJie price current 
list would be a most complicated document, for each 
commodity would have to be quoted in terms of ev- 
ery other commodity, or else complicated rule- of - 
three sums would be necessary. Between 100 arti- 
cles there must exist no less than 4950 possible 
ratios of exchange. 

" All such trouble is avoided if any one commodi- 
ty be chosen, and its ratio of exchange with each 
commodity be quoted. Knowing how much corn is 
to be bought for a pound of silver, and, also, how 
much flax for the same quantity of silver, we learn 
without further trouble how much corn exchanges 
for so much flax. The chosen commodity becomes a 
common denominator or common measure of value, 
in terms of which we estimate the value of all other 
goods, so that their values become capable of the 
most easy comparison. 

143. An Incidental and Subordinate Function — Ad- 
mitting the importance of having a value-denomi- 
nator in which the prices of all articles shall be ex 
pressed, we cannot admit that this constitutes a 
separate and independent function of money, since 
it is evident that gold or silver, or any other article, 
can only serve as a value-denominator by and 
through being used as the medium of exchange. 

It is only because silver, for instance, is, in fact, 
successively exchanged against all the articles in the 
piarketj that the respective values of these articles. 



STAJSTBAMD OF DEFERMED PAYMENTS. 115 

in terms of silver, become known. Instead of tliis 
being an independent and co-ordinate function of 
money, therefore, it is merely an advantage resulting 
from the use of money as the medium of exchange. 
It is, at most, an incidental and subordinate function. 

The better statement, still, would be that money 
serves as the medium of exchange : 

{a) Dispensing with the double coincidence re- 
quired in barter, 

ip) Furnishing a value-denominator for the easy 
and just comparison of the values of all the articles 
in the market. 

144. The Standard of Deferred Payments, usually 
Called the Standard of Value — We have seen that it is 
of the essence of a sale for money, that the producer, 
or whoever at the time stands in the place of the 
producer, parts with his product, receiving there- 
for something which he does not expect personally 
to consume, something, perhaps, for which he has 
at no time a personal need. His reason for receiv- 
ing this article in exchange for his product is that 
with it he exx)ects to obtain, in time and place and 
amount most suitable to his convenience, that which 
he shall desire to consume. 

It was in this view of money that Adam Smith 
said : "A guinea may be considered as a bill for a 
certain quantity of necessaries or conveniences upon 
all the tradesmen of the neighborhood." 

145. Money a Pledge of Future Enjoyment. — It will 
a23j)ear that, looking towards the satisfaction of the 
producer's wants, a sale for money is only half a 
transaction. He sells his product for money, and 
must, in turn, sell, so to speak, his money for the 



116 POLITICAL ECONOMY, 

products of others, such as lie may desire personally 
to consume. 

But while, in the very act of a sale for money, the 
producer defers his acquisition of the products of 
others which , he may wish ultimately to consume, 
the question, when that acquisition shall be real- 
ized, remains for himself alone to answer. He has 
the money, which constitutes what has been called 
an order-for-goods upon all tradesmen of the 
neighborhood ; and whenever he chooses to step 
into a shop and lay the coin down upon the coun- 
ter, he may take his equivalent then and there, 
whether in meat or flour or groceries or clothes or 
tools for his trade. 

146. Sales on Credit. — We are now to contemplate 
exchange transactions of a different character, which 
give rise to a new function of money, viz., ex- 
changes where the equivalent, money, is not, at the 
time, received by the seller of goods ; but where 
future payment is promised. These transactions 
are known as sales on credit, because the willing- 
ness of the producer to part with his goods without 
at the time receiving an equivalent, depends upon 
the credit of the purchaser. 

147. The vast extension of credit-sales under the 
modern organization of trade, makes a new and 
very important requirement upon that article which 
is to be used as money, viz., that, in addition to being 
conveniently portable, not liable to deterioration or 
accidental injury, easily subdivided, etc., etc., it 
shall be reasonably stable in value. 

Where a man takes money in his hand as the 
equivalent of his product sold, which we call a sale 



STANDARD 0:B' DEFERRED PAYMENTS, 11? 

for cash, lie has no anxiety on this account. He 
may exchange his money for goods the same day ; 
if he does not, it is because he does not choose to 
do so. But if a man is to forbear payment for a 
considerable time, it becomes of great importance 
that he should know what that which he is to 
receive at a distant date will be worth to him when 
he gets it. On the day of the sale, the money 
which is stipulated is worth the goods ; . otherwise, 
the sale would not take place. On the day 
of payment, the money may be conceivably worth 
twice the goods, or only half the goods. 

The risk of some undeserved loss, the chance of 
some unearned gain, are inherent in the nature of 
sales on credit. Whether that risk of loss or chance 
of gain shall be great or small, will depend on the 
degree of stability which attaches to the value (that 
is, the power to command the labor of others) of 
the article used in that community, during that 
period, as money. 

It is evident that articles which might otherwise 
be equally well fitted for use as money in sales for 
cash, that is, which might be otherwise equally well 
fitted to serve as the medium of exchange, may be 
very differently qualified to serve as what we now, 
for the first time, call the Standard of Deferred 
Payments. 

148. The G-rains and the Metals. — Thus, if we com- 
pare the grains and the metals, we note that the 
former are quickly consumed, the greater part in 
first year, all within the second year ; while the lat- 
ter last, even in active use, many years. The aver- 
age *'life" of iron may perhaps be stated at fifteen 



118 POLITICAL EGOnOMT. 

to twenty years ; tlie life of copper is much longer, 
and tliat of gold or silver covers several liuman 
generations. 

From these facts it results that, if the production 
of any grain, e.g.^ corn or wheat, falls off consider- 
ably, in any year or two successive years, the value 
of that grain will rise rapidly, it may be to an in- 
ordinate height ; while the production of gold or 
silver, and, in a lov/er degree, of copper or iron, 
might be sensibly diminished during several years 
without greatly affecting the quantity and, by con- 
sequence, the value, of the existing stock. 

149. Fluctuations in the Value of the Precious Metals. 
— But while the precious metals are thus almost a 
perfect ''standard of deferred payments," from one 
year to another, they are yet subject to great peri- 
odic variations from generation to generation and 
from century to century. The production of the 
precious metals is of the most spasmodic character. 
At times, a flood of gold, or of silver, or of both, has 
poured from newly- opened mines, as after the dis- 
covery of the mines of Potosi in 1545, and of the 
mines of California almost coincidently with those 
of Australia, in 1848-51 ; at times, on the other hand, 
mining industry has almost wholly ceased, either 
from the exhaustion of the known dej)osits, or as 
the result of war or civil disturbance. In agricul- 
ture, however, while incessant fluctuations in the 
supply of the grains, even those most largely and 
widely planted, result from the mutability of cli- 
mate, the great changes from generation to genera- 
tion, and from century to century, are not so far- 
reaching. 



COBN RENTS. 119 

The vast breadth of arable land of reasonably 
uniform quality ; the simplicity of the processes of 
agriculture, and the wide diffusion of the art of till- 
age ; the comparative immunity of the soil amid 
ravages which greatly impair, perhaps permanently 
cripx)le, manufacturing, and in an even greater 
degree, mining industry ; the limited apjplicability 
of the principle of the division of labor to agricul- 
ture and the relative inefficiency of machinery in its 
operations ; these causes combine to render bread- 
corn, in truth, what Francis Horner pronounced it 
to be, "the real and paramount standard of all 
values." 

150. Corn Rents.— The superior stability of value 
of the cereals, through long periods of time, has led 
to the suggestion that, in the case of contracts ex- 
tending over considerable terms of years, grain 
should be adoj)ted as the standard for determining 
the obligations of the debtor, the rights of the credi- 
tor. To a limited extent this has been done ; but 
the tendency to express the consideration of all sales 
in terms of that which is the current money of daily 
use in the community is so strong that few persons, 
even of those who are acting as trustees for insti- 
tutions of charity or of learning, or for persons 
incapable of doing any thing to repair losses that 
may be sustained by an adverse change in " the 
standard," take the trouble thus to guard the in- 
terests they represent; nordoesany tendency appear 
to an increased resort to this mode of measuring in- 
debtedness. 

151. Multiple or Tabular Standard.— It has even been 
proposed to go further, in the effort to avoid those 



1^0 POLITICAL EGONOMY, 

undeserved losses which result to debtors or to 
creditors, as the case may be, from changes which 
take place in the value of even the precious metals 
through long periods of time. The scheme for a 
multiple standard or tabular standard, to form which 
a great number of articles should be joined together, 
in order that their individual value-variations may 
offset each other, with the result of substantial uni- 
formity of value in the mass so composed, was, early 
in the century, suggested by writers in England and 
Gfermanv. 



CHAPTER lY. 
Moi^EY Ai^D ITS Value — Continued, 

DEBASED COIN : SEIGNIORAGE. 

152. Debased Coin.— We now approach a question 
wliicli should be decided entirely U23on the ]3rin- 
ciples regulating the value of money already laid 
down, yet which is the subject of so much miscon- 
ception, which has been so covered over with false 
reasoning by authors who, in other dei3artments of 
political economy, have done excellent work ; and 
which is so sure to arouse prejudice and passion, 
that it is needful for the teacher to accompany the 
student of money over the ground, and, if possible, 
save him from the pitfalls and quagmires into which 
even trained logicians and practiced writers have 
fallen. 

153. Seigniorage.— The most safe and convenient 
entrance to this subject is through seigniorage. 
That term has long been applied to the amount of 
metal abstracted by government, or the lord, the 
seignior, before coinage. Seigniorage may be of two 
kinds, or rather two degrees. 

1. When the cost, either actual or approximate, 
of coinage is taken out, and thus the state or the 
lord is reimbursed for the exi3ense. ^ 

2. When more metal than is necessary to repay 
the expense of coinage is abstracted, and thus the 
state or the lord makes a profit by the coinage. 



12^ POLITICAL EGO^OMt. 

154. Cost of Coinage.— Let US consider the first. 
Shall the value of the coin be computed according 
to the market value of the contained metal, viewed 
as so much bullion, or shall the cost of the mintage 
be added to the value of the metal? For instance, 
if the expense of making the coin called a dollar be 
one cent, shall the coin contain a hundred cents' 
worth of gold or silver, or shall it contain 99 cents' 
worth, and the cost of the coinage be added to make 
up 100 cents % 

On this point the opinion of economists and the 
practice of governments differ. Although the ques- 
tion involved is not wholly economic in its nature, 
but is in part matter of political and fiscal expe- 
diency, we will here briefly state the arguments on 
the one side and the other. 

On the one hand, it is said that gold and silver, 
being wanted in the form of coins, are, for that 
reason, worth more in coin than in bullion ; that, 
serving an additional use as coined money, they 
are the subjects of a demand over and above what 
exists for uncoined bullion, a larger demand justi- 
fying a higher price ; that, moreover, to fit them 
for this use, labor and capital are employed, the cost 
of which service should appear in the value of the 
product. 

Iron is sold in the form of plates, rivets, rods, 
and chains, at more than the price of iron in the 
pig ; in the same way, if gold in coin costs more, 
and is more useful than in ingots, those who want 
it in the form of coin, and not the whole commu- 
nity, should pay for the coinage. 
155. Gratuitous Coinage — Moreover, it is urged, if 



GRATUITOUS COINAQE. 123 

SLicli a charge be not made, a vast amount of metal 
will alternately be coined and melted down, recoined 
and again melted ; whereas a seigniorage charge will 
imt a premium upon the exportation of coin or its 
melting down for use in the arts, so that bullion, if 
it is to be found, will be taken instead, and coin will 
only be taken when sufficient bullion is not found to 
supply the demand. 

It was in this view that Dudley J^orth called gra- 
tuitous coinage,^ " a perpetual motion found out, 
whereby to melt and coin, without ceasing, and so 
feed goldsmiths and coiners at the public charge." 

In the face of these considerations, however, some 
of the greatest commercial nations, England fore- 
most among them, have maintained gratuitous 
coinage. Nor is this course wholly without econom- 
ic justification. 

It is said that, while the expense of equipping, 
officering, and operating a mint is large, the difference 
in expense caused by minting more or fewer coins, is 
very small. For this, it is argued, the country es- 
tablishing gratuitous coinage is compensated by the 

* The distinction between gratuitous coinage and free coinage, is 
not sufficiently observed. Where no seigniorage charge is made, but 
the coin contains the full amount of bullion which corresponds to its 
mint value, i. e., when the dollar contains one hundred cents' worth 
of metal, that is gratuitous coinage. Free coinage exists, where any 
owner of bullion has the right to have it coined on the same terms as 
the Government, or as any other citizen, whether with or without a 
seigniorage charge. Thus free coinage exists in England in regard to 
gold. Any subject can bring gold, in any amount, to the mint and 
have it made into gold coin ; but free coinage does not exist with re- 
spect to silver, that metal being coined only in such amounts as the 
Government, through the Bank, deems necessary for supplying thQ 
people' of the JCingdom with *' change," 



124 POLITICAL ECONOMY. 

instantaneonsness with which the export of gold 
follows the slightest accumulation in excess of the 
wants of trade. 

156. Seigniorage in Excess of Cost of Coinage. — So 
much for seigniorage which only covers the cost of 
coinage. We have now to speak of mint charges 
which exceed that cost, and become a source of 
revenue to the state. 

In the old days of high prerogative, kings fre- 
quently made their sole right of coinage a means of 
profit. In England, the seigniorage on gold during 
the reign of Henry YII., once- rose to 16 per cent. 
In France, in Italy, and in most of the countries of 
continental Europe, before the great revival of 
modern commerce, debasement of the coin was a 
favorite resort of weak or profligate monarchs. Both 
in quantity and quality, in weight and in fineness, 
the circulating money was pinched and robbed, until 
the actual amount of pure metal bore sometimes a 
ludicrously small ratio to the original fine contents 
of the coin. The English "pound" was once a 
pound-weight of silver. The pound of standard 
silver is now coined into QQ^ instead of 20 shillings. 
The "pound scots," of which we read, had but 3V 
of its original weight. The florin and the Spanish ' 
maravedi were once .pieces of gold. The former is 
now a piece of silver ; the latter a piece of copper. 

157. What is the Effect of Seigniorage on the Pur- 
chasing Power of Coin ?— On this subject I follow Mr. 
Ricardo without deviation. 

Let us suppose that in a certain country are re- 
quired for the purposes of domestic trade, 1,000,000 
pieces, each containing 100 grains of fine gold. This 



SEIGNIOBAQE. 125 

would involve the use of 100,000,000 grains of gold 
as money ; and a certain average level of prices 
would result from the relation between this amount 
(its rate of circulation being assumed constant, for 
the purx30ses of the following illustration), and the 
demand for money arising from the exchanges act- 
ually requiring to be effected by the use of money. 

Now, suppose the principle of seigniorage to be 
introduced, the sovereign, out of every hundred 
grains brought to the mint, taking one to repay the 
actual cost of coinage, putting into circulation 
1,000,000 pieces of 99 grains each, and placing 
1,000, 000 grains in his storehouse as treasure, or caus- 
ing it to be manufactured into plate or ornament. 
There are now only 99,000,000 grains of gold in 
circulation, but the same number of pieces, i. e. 
1,000,000, each of the same "mint-value" i. e., 100 
grains. 

W ill each piece now purchase as much of other 
commodities as before, or less ? 

We answer, as much. There is the same demand 
for pieces for the j^urposes of exchange ; there is the 
same supj)ly ; the same prices must result. 

But suppose the sovereign proceeds further, and 
cakes not one grain, but ten, from every hundred, 
issuing 1,000,000 pieces of only 90 grains each. 
Will the iDurchasing power of each piece be affected ? 
Not in the least. There is the same demand for 
pieces, the same supx)ly. People stiU want pieces 
of money ; can only get them by giving commodities 
for them ; have as many commodities and no fewer 
to give ; and there are just as many pieces and no 
more to be obtained in this way. 



126 POLITICAL ECONOMY. 

158. Excessive Issues. — But let us take a step in a 
somewhat different direction. Let us suppose that 
the sovereign, instead of placing in his treasury the 
30,000,000 grains which he tool^, under his right of 
seigniorage, coins this gold, also, into pieces of 90 
grains each, and pays them out for personal or 
public expenses. What will be the result ? Depre- 
ciation will at once begin. The 90,000,000 grains, 
when coined into the same number of pieces of the 
same official (mint) denomination as the 100,000,000 
had been, retained the same purchasing power ; but 
when the 100,000,000 are coined into a larger number 
of pieces, i. e.^ 1,111,111, the purchasing power of 
each piece at once falls. 

159. Rieardo's Statement. — " While the state alone 
coins," says Mr. Ricardo, " there can be no limit to 
this charge of seigniorage ; for, by limiting the 
quantity of coin, it can be raised to any conceivable 
value." 

Mr. Ricardo did not flinch from the assumption of 
a seigniorage of 50 per cent. "There can," he 
asserted, .' ' exist no depreciation of money, but from 
excess ; however debased a coinage may become, it 
will preserve its mint value ; that is to say, it will 
pass in circulation for the intrinsic value of the bul- 
lion which it ought to contain, provided it be not in 
too great abundance." 

This doctrine, which has proved "a hard saying" 
to many economists, a stumbling block and a rock of 
offense to many readers, is, it will be observed, 
merely the rigorous, courageous application of the 
principle that the value of money is determined 
solely by the relation between demand and supply, 



DEPRECIATION OF THE COIN. 127 

160. The Omitted Proviso to Kicardo's Statement.— 
There is one proviso wMcli should be attached to any 
statement of Mr. Ricardo's theorem regarding the 
value of debased coin. 

If debasement of the coin be carried so far and 
carried on so long that a popular reluctance to re- 
ceive the money pieces be generated, of a strength 
sufficient to cause men to modify or limit their pro- 
duction in order to avoid exchanges, or to cause 
them to encounter the inconveniences of barter, 
rather than handle the distrusted coin, then depre- 
ciation may result : thafc is, the supply of money 
will become excessive through the blow inflicted 
upon the demand for money. 

161. Depreciation not a Necessary Result of Debase- 
ment. — Let us suppose the coin of a country, with- 
out being increased in amount, to be debased three 
per cent., and the fact to become known. The habit 
of accepting the coin is strong ; the acquired mo- 
mentum of the circulating mass is great ; men must 
either take the coins in exchange for their products, 
or they must cease to produce ; or they must change 
their industry and produce that which does not need 
to be exchanged, i. e.^ that which they will them- 
selves consume; or, lastly, they must resort to 
barter. 

Now, any one of the latter courses involves a great 
initialloss, greater, doubtless much greater, than any 
possible loss in receiving coin debased three per 
cent. For this reason men continue to receive the 
coin, or, more properly, they continue to receive it 
without reasoning at all about the matter, having 
been accustomed from childhood to take it freely 



128 POLITICAL ECONOMY. 

and gladly. And if any man, more thonghtful than 
his fellows, hesitates to accept the money pieces, his 
hesitation vanishes on beholding all around him re- 
ceiving them without demur. That is all he needs. 
If others will take the coins from him, his own occa- 
sions will, in turn, be answered. And so a full and 
free acceptance of a debased coinage might be es- 
tablished in spite of a momentary feeling of reluct- 
ance, or even without such a feeling arising at all. 

162. And it is to be borne in mind that this coin 
circulates at its mint-value, not at a discount. As- 
suming, as we have done, that the habits of the peo- 
ple in regard to production and trade have not been, 
as yet, changed by the debasement of the coinage, 
there are just as many goods to be exchanged as be- 
fore ; just as many money-pieces are, therefore, 
needed, while no more money-pieces are to be had, 
since we have all along made the condition that the 
metal abstracted by the government should not be 

put into new coins. 

163. Depreciation Results from Excessive Issues.— 
But now let us suppose that, when the debasement 
has proceeded to the extent of ten per cent. , govern- 
ment takes the gold or silver it has abstracted from 
the coin, and issues it in the form of new coin de- 
based like the other. Immediately depreciation will 
set in. The value of money, like the value of any- 
thing else, is determined by the relation between de- 
mand and supply. The goods to be exchanged for 
money-pieces remaining the same in amount, and the 
number of pieces having been increased, the pur- 
chasing power of each piece falls, irrespective of 
any popular distrust of the coin. 



INFLATION, 129 

So far tlie effect is the same as in the case of an 
excess of full-metal coin ; but, as depreciation pro- 
ceeds, the essential difference between the two kinds 
of money ax)pears. With an excess of full-metal 
coin, exi)ortation begins at once. The country be- 
comes a good market to sell in, a bad market to buy 
in, both for the same reason, viz., prices are higher 
there ; and the course of exchange will speedily bring 
in the remedy. With debased coin, however, no out- 
let is afforded until the depreciation reaches the point 
when the 90 grains of fine metal in the coin will 
bring more, abroad, melted down, than the coin 
(though of the mint-value of 100 grains) will bring 
at home. Within this limit, dei)reciation may pro- 
ceed without remedy. 

164. Inflation.— A permanent excess of the circula- 
ting money of a country, over that country's dis- 
tributive share of the money of the commercial 
world, is called Inflation. Its influence on industry 
and trade and on the distribution of wealth will be 
discussed hereafter. 



CHAPTER Y. 
Inconvertible Paper Money. 

165. In monetary science, the true entrance to pa- 
per money is through seigniorage. If we have 
rightly apprehended the relations of seigniorage to 
the circulation of coin, and the effects of seigniorage 
upon prices, we need have no difficulty in deal- 
ing with any question arising under the present 
title. 

''The whole charge for paper money may be 
considered as seigniorage." This remark of Mr. 
Ricardo is true and very significant. We have seen 
that the State may withhold from the coin one per 
cent, of the pure metal, to cover the cost of coinage ; 
that it may withhold ten per cent., as a means of 
securing revenue for the treasury, and that such 
pinching of the coin has been frequently practiced 
in the ages of high prerogative ; that the State may 
go further and, by successive invasions of the coin, 
takeout one- half or even two- thirds of the money 
metal, as in the case of the English pound sterling, 
or all but three per cent., as in the case of the pound 
Scots ; that it may even go further still and substi- 
tute copper for gold, as in the case of the Spanish 
maravedi. 

Now let the last step be taken in the same direc- 
tion, and, instead of pieces of metal, let the public 
treasury issue pieces of paper bearing the names of 



THE PAPER MONET STATES. 131 

the superseded coins, and we have a body of money 
governed by precisely the same princijples, alike as 
to circulation and as to the resulting prices of com- 
modities, as a debased coinage, whether debased 
three per cent, or thirty. Pax^er money is money 
upon which the seigniorage charge is one hundred 
per cent. '^ 

166. The Paper Money States.— Of the present States 
of Europe, the southern tier, Portugal, SjDain, Italy, 
Greece, Austria, and Turkey, comprising every 
country that borders the Mediterranean, except 
France, have inconvertible paper money, issued by 
government. Russia, though both a northern and 
a southern State, casts in its lot with the Mediter- 
ranean nations in this respect. The northern tier of 
countries. Great Britain, France, Belgium, Holland, 
Germany, and Scandinavia, have paper money, in- 
deed, but of that class which we shall describe, un- 
der a subsequent title, as Bank Money. 

167. Characteristics of Inconvertible Paper Money.— 
The kind of money of which we are writing may 
either be issued originally by the State, out of the 
Treasury, as a fiscal measure, as in the case of the 
present pax)er money of most of the southern States 
of Europe already mentioned, as in the case of the 
" assignats " and " mandats " of the French revolu- 
tionary epoch ; as in the case of the ''Continental 
currency" of the American revolution, and of the 
•'Greenbacks" and "Confederate notes" of the 
war of secession ; or it may result from the degen- 
eration of bank money, originally issued with the 

* Minus the inconsiderable cost of paper and printing. 



132 POLITICAL ECONOMY. 

character of convertibility, but, by some exigency 
of government or stress of commercial misfortune, 
losing that character, as in the case of the English 
Bank money of the " Restriction " (1797-1821), as 
in the case of the notes of the Bank of France dur- 
ing the revolution of 1848, and again during the war 
of 1870-71, with Germany, and for several years 
thereafter. 

Generally speaking, forced circulation is an at- 
tribute of this sort of money, though that character 
may be disguised, especially in the case of degener- 
ated bank money, by one artifice or another, as for 
instance the money may not be made legal tender, 
but all remedy at law may be taken away from cred- 
itors who refuse to receive it. 

Paper may be declared to be redeemable in coin ; 
that promise may even be borne upon the face of the 
paper ; but if provision be not made so that, in fact, 
every holder of a note can obtain therefor, at will, 
full-metal coined money, the paper is inconverti- 
ble in the economic sense. If any conditions to re- 
demption are interposed, it is none the less incon- 
vertible than if redemption were not even prom- 
ised. 

The pledge of public lands or stocks for ultimate 
payment, makes no difference, in this respect. No 
paper money is convertible, the full, immediate and 
unconditional redemption of which is not, at all 
times, within the choice of the holder. 

168. May Taper Money Serve as the Coninion Medium 
of Exchange? — About this there can, I conceive, be 
no doubt whatever. Take the United States ' ' Green- 
backs" of 1862 to 1879. Did not producers accejpt 



INCONVERTIBLE PAPER MONET. 133 

them readily in full payment for goods ? Yes, with 
the utmost readiness. Did men resort to barter to 
avoid the use of this medium of exchange 1 No. 
Did men refuse to j)roduce, or contract their pro- 
duction, or modify it, lest they should have to receive 
those circulating notes in payment for their com- 
modities ? Again, no. 

169.— May Paper Money Serve as the Value Denomi- 
nator? — It is at this point that the economists ap- 
pear to me most deeply in error, insisting, as they 
do, that here is something that money does, but 
]3aper money cannot do. 

It was said, in the last chapter, that money, in 
performing the function now in question, is com- 
monly sj)oken of as the "Measure of Value." 

It was shown that this function is not a separate 
and independent function of money, but a purely 
incidental and subordinate function ; that not only 
is any thing which is competent to serve as the gen- 
eral medium of exchange, adequate also to serve as 
the common denominator of values ; but that any 
thing which does, in fact, serve as the medium of 
exchange, must, in the very act and part of doing 
so, create the price-current, which is what is sought 
under this title. 

If corn, beef, wool, potatoes, coal, and all other 
articles in the market are daily exchanged for that 
one article —money — no matter of what it consists, 
or why it became money, we have, as the direct re- 
sult of those transactions, the means of comparing 
the values of corn, beef, wool, and all other articles : 
that is, we have our price- current. If all those arti- 
cles are exchanged against pieces of paper, we ob- 



134 POLITICAL ECONOMY. 

tain their exclianging proportions just as really, 
just as accurately, just as readily and intelligibly, 
as when they are exchanged against pieces of gold 
or silver or copper. If one article brings three pieces 
of paper, another ten, another eight, we learn the 
comparative value of those articles as quickly and 
easily as if the first brought three ]3ieces of silver, 
the second ten and the third eight. 

All that is needed for a value denominator is that 
each product in the market shall be in turn ex- 
changed against some one article, in order that the 
value of each and all products shall be expressed in 
terms of that article, from which it will result di- 
rectly that the exchanging proportions of the sev- 
eral products become known. 

170. May Paper Money Serve as the Standard of De- 
ferred Payments?— That paper money may serve as 
the standard of deferred payments (usually, but in- 
appropriately, called " the standard of value") goes 
w^ithout saying. As was stated under a previous 
title, forced circulation is generally an attribute of 
this sort of money, and where that is the case, such 
money becomes, by definition, the standard of de- 
ferred payments. By it the obligation of the debtor, 
the claim of the creditor, is measured, as of 
course. 

Even where paper money is not made legal ten- 
der, it is almost, if not quite, as likely to become 
the standard of deferred payments as a money of 
silver or gold. The tendency to express the consid- 
eration of all sales in terms of that which is the cur- 
rent money of daily use, is so strong that few per- 
sons, even of those who are acting as trustees, will 



THE VAL UE OF PAPER MONEY. 135 

take tlie trouble to make leases, rents, annuities or 
interest upon loans payable in any thing but the or- 
dinary circulating medium of the time. 

During the circulation of the legal-tender green- 
backs in the United States, every person who wished 
to make contracts for future payments in terms of 
gold or silver, was at liberty to do so ; yet it is noto- 
rious that very few took advantage of their legal 
"right in this respect. That which had become, no 
matter how, the current money of daily use became, 
for that reason alone, the almost universal standard 
of deferred payments. 

It is quite another question whether paper money 
performs this function well, with justice to debtor 
and creditor, or with advantage to the general 
community. That question we shall meet further 
on. 

171.— What Determines the Value of Paper Money? 
—What determines the value of any kind of money? 
What determines the value of any thing ? Demand 
and supply. The demand for money is, as we saw, 
the amount of money -work to be done, the amount 
of exchanging requiring to be effected through the 
use of money. The supply of money is the money- 
force available to do the money- work, compounded 
of the volume of the circulating money, and the rate 
of circulation. Supposing the occasion for the use 
of money — the demand — to remain the same, and 
the rate of the circulation of paper to be the same 
as that of metal, the value of a body of paper money 
would be the same as that of a body of money con- 
sisting of as many pieces of metal as there were 
pieces of paper, the pieces being of the same " denom- 



136 POLITICAL ECONOMY. 

i nations," whether stamped by the mint-press or 
the printing-press. 

We said : " Supposing the occasion for the use of 
money — the demand — to remain the same." Will 
the demand for money be affected by the substitu- 
tion of paj)er for metal ? The popular opinion un- 
doubtedly is, as often expressed by pamphleteers 
and uninformed writers on the subject of money, 
that the mere fact of the emission of inconvertible 
paper, of itself, produces discredit, so that such 
money, irrespective of any excess of issue, at once 
becomes distrusted and avoided, and, inconsequence 
the demand is diminished and depreciation en- 
sues. 

172. Depreciation not a necessary consequence of In- 
convertitoility.— The opinion above stated is, how- 
ever, unfounded. We saw (par. 161) that deprecia- 
tion was not a necessary result of debasement of the 
coin. Not only will the same line of reasoning es- 
tablish the proposition that depreciation is not a 
necessary result of the issue of inconvertible paper ; 
but historical instances, not a few, exist of such 
paper money maintaining itself for a time in circu- 
lation without discredit and without depreciation. 

173. Inconvertible Paper always issued as Cheap 
Money.— The moving cause in the issue of inconverti- 
ble paper money in any country where it has been 
known, has been its cheapness, as compared with 
the metal money which it has replaced. Whatever 
excellencies may have been reflectively discovered 
in such money after it had come into circulation, I 
am not aware that the institution of such money 
has been due, in any individual instance, to any 



" CHEAP money:' 137 

other virtual reason than that which has been ex- 
pressed. 

We saw that the sovereign first pinched tlie coin, ' 
say, one percent., under the name of seigniorage, to 
meet the cost of coinage, and then, finding the op- 
l)ortunity too tempting, took out it might be five, it 
might be fifteen per cent., or even more, for his own 
benefit. The issue of pajDer money is, in effect, the 
exaction of a seigniorage of one hundred per cent. 
At times, that exaction has been made in cold blood, 
at the dictate of avarice ; at times, and indeed, more 
often, the exaction has apx)eared to be justified, if 
not sanctified^ by some great exigency of national 
life. 

174. Without any such stress of fiscal necessities 
as those caused by war, paper money has been fre- 
quently issued by governments as a fiscal resource, 
to enable public works to be created, to meet an un- 
expected deficiency of revenue, or even, as in the 
case of some of the early American colonies, to set 
bounties on manufactures or the fisheries. There is 
always a great temx)tation, to statesmen and to peo- 
ple alike, in times of emergency, in the knowledge 

* Hence the phrase "the blood-stained Greenbacks." Lest I 
should be misunderstood, let me say that it is my firm belief that the 
issue of inconvertible paper money is never a sound measure of 
finance, no matter what tlie stress of the national exigency maybe. 
1 iielieve it to be as surely a mistaken policy as the resort of an 
athlete to the brandy bottle. It means mischief always. If there is 
ever a time when a nation needs its full collected vigor, with a steady 
pulse, a calm outlook, a hand and a brain undisturbed by the fumes of 
this alcohol of commerce — paper money — it is when called to do bat- 
tle for its life with superior force. It is to my mind the highest proof 
ever afforded of the supreme intellectual greatness of Napoleon, that 
during twenty years of continuous war, often single handed against 
half the powers of Europe, he never was once driven to this desperate 
and delusive resort. 



138 POLITICAL WONOMY. 

that it is |)ossible to replace a money of high cost 
by a money of low cost, of cost, indeed, so small 
that it may be called, no cost. 

175. Is it Really Cheap Money ?— That depends on 
whether it be good money or not. The money func- 
tion is so important, so vital, in the industrial sys- 
tem, as we have seen it, and still more as we shall 
see it, that there can be no true economy in any 
money but the very best. If the first cost of money 
can, indeed, be saved, in whole or in part, without loss 
of efficiency or safety, that course is unmistakably 
dictated by the same law of the human mind which 
impels the individual to go to his object by the 
shortest path, or to buy in the cheapest and sell in 
the dearest market. 

176. Is it, then, Good Money ?— I know of nothing in 
the history of inconvertible paper money to indicate 
that such money, when issued, e. g.^ of, a denomina- 
tive value not to exceed, at any rate not greatly to 
exceed, the mint-value of the coin which would have 
circulated in the community under the law for the 
territorial distribution of money which has been 
stated, may not serve as the general medium of ex- 
change, so far as the internal trade of a country is 
concerned, in every way as satisfactorily as the coin 
itself. 

Moreover, it has, I think, been sufficiently shown 
that whatever acts as the general medium of ex- 
change in the very act of doing this performs the 
function of a common denominator of values, fur- 
nishing a price- current in which the values of all 
commodities are expressed in terms of that one ar- 
ticle, thus enabling comparison of prices to be readily 



INCONVERTIBLE PAPER MONEY. 139 

and confidently made as between any two or more 
commodities. 

177. Inconvertible Paper Money as the Standard of 
Deferred Payments.— In the fact that this money has 
no natural cost of production corresponding at "all to 
its value, lies the possibility, not merely of gross 
injustice as between individuals and classes of the 
community, which is not an economic considera- 
tion, but also of grave industrial evils, and even of 
industrial disasters of the most appalling char- 
acter. 

The expense of printing a dollar bill is so small, 
in comparison with its denominational value, that, 
for purposes of economic reasoning, it may be dis- 
regarded altogether, while the expense of printing 
a ten-dollar bill or a hundred-dollar bill or a thou- 
sand-dollar bill is no greater. The limitation of sux3ply 
in the case of such money, must, therefore, be left 
to law, convention or accident. The quantity may 
be trebled, decupled, or centupled by the opera- 
tions of the printing press, faster even than the bills 
can be iDaid out over the counters of the treasury. 

178.— Domestic Effects of Inflation.— The value of 
money depending, as has been shown, upon the re- 
lation of supply to demand, an increase of issues 
imi)lies a loss of value in each given quantity of 
money. This involves a corresponding loss to cred- 
itors, and a corresponding gain to debtors. This 
result being brought about by legislation or by the 
act of the prince, is properly termed confiscation. 
Such a measure at once becomes a highly destructive 
force within the field of industry, dealing a grievous 
blow at the instincts of frugality in the individual, 



140 POLITICAL ECONOMY. 

and at the organization of the industrial body for 
the purposes of x>rodnction and exchange. 

A single injury like this might in time be recovered 
from ; but if new fiscal exigencies of the government, 
or the wolfish howls of the" debtor class around the 
doors of the legislature draw out other issues of in- 
convertible pa]3er, not only will the value of the 
money continue to sink, through excess of supply, 
but another cause will begin to work in the same 
direction. The money demand will receive a shock 
such as has been described in par. 160, which may 
operate slowly and continuously, or may produce a 
sudden collapse of the circulation. 

Such are the possibilities attending the issue of 
paper money by government. It may be asked what 
are the probabilities of the case \ As we have here 
reached the limit of strictly economic inqairy, I 
prefer to postpone our answer to this inquiry to 
PartTL, where, under the title " Political Money," 
the subject will be briefiy treated in its political and 
historical aspects. 

179.— Inconvertible Paper Money and Foreign Ex- 
changes — But before we leave the topic of inconverti- 
ble paper money, we have to view another phase, viz., 
its relation to International Exchanges. Thus far 
we have s]3oken of the issue of paper money by 
government, only in its effects upon domestic trade 
and production. 

By the mere fact of the adoption of this kind of 
money, a country loses all the advantages of an 
automatic regulation of the money supply through 
the normal movements of trade. Paper money finds 
no outlet in international commerce. It cannot be 



EFFECTS OF DEPRECIATION. 141 

exported and retain its value. Hence its regulation 
becomes purely mechanical. Having no natural 
cost of production, it will not, if in excess in any 
country, flow away in obedience to the law which 
governs the distribution of a money having accept- 
ance abroad equally as at home ; but, if issued in 
excess, it can only be removed by being pumped out 
by the same force which originally issued it. 

Even where the excess of such paper money, over 
what would have been that country's distributive 
share of the world's money, be not enough to pro- 
duce grave disturbances of domestic industry, the 
effect on foreign trade will yet be momentous. The 
immediate result of any excess must be to establish 
a premium upon that metallic money in which alone 
foreign balances can be paid. 

During the German war, and for some years after, 
viz., from 1871-1877, the notes of the bank of France 
were inconvertible ; yet such was the sagacity and 
prudence of the directors of that institution that at 
no time was there any considerable discount on that 
money, the premium on gold being often but a small 
fraction of one per cent. Yet, slight as was the dis- 
turbance of the domestic circulation thereby pro- 
duced, Mr. Bagehot in his standard work, Lombard 
Street, written during the period of suspension, at- 
tributes to it the most momentous consequences. 

"The note of the bank of France," he says, " has 
not, indeed, been de|)reciated enough to disorder or- 
dinary transactions. But any depreciation, how- 
ever small, even the UabiUty to depreciation^ with- 
out its reality^ is enough to disorder exchange 
transactions. They are calculated to such an ex- 



142 POLITICAL ECONOMY. 

tremity of fineness, that tlie change of a decimal 
may be fatal, may turn a profit into a loss. Ac- 
cordingly London has become the sole great settling 
house of exchange transactions in Europe, instead 
of being, as formerly, one of two." 



CHAPTER VI. 

Bank Moitey. 

180. The Characteristics of Bank Money. — To secure 
tlie superior convenience of paper money, and, in 
a degree, also, its cheapness, as contrasted witli 
money of metal, wliile retaining the comparative 
stability of value which characterises the latter, and 
to keep the local circulation in such close commu- 
nication with the general circulation of commerce 
as to insure the automatic regulation of the money 
supply, bank money has been invented. 

The essential characteristic of such money is 
that the paper is instantly convertible, on the de- 
mand of the holder, into coined money. When- 
ever, by the unrebuked and unpunished lapse of 
the banks issuing paper money, as so frequently 
in the early history of the United States, or by the 
action of government, the money so issued fails to 
be convertible to the full extent indicated, even by 
only so much as the interposition of a condition to 
payment, or of delay in payment, it becomes incon- 
vertible paper money. Nothing entitles paper money 
to be called bank money except full, instant, un- 
conditional redemption in coin. There is no stop- 
ping place between this condition and that of incon- 
vertibility. 



144 POLITICAL ECONOMY. 

Generally speaking, this sort of money is issued 
by institutions which, wliether under State patron- 
age or not, are so far disconnected from the govern- 
ment that their officers and agents can be sued in 
courts, and their assets and effects be attached for 
the recovery of the amount promised by the bank 
notes to be paid on demand. 

181. The Origin of Bank Money. — Bank money was 
first issued in Sweden, in 1668. The Bank of Scot- 
land issued £1 notes as early as 1704, while the 
Bank of England did not issue notes below £20 
j)rior to 1759. The issue of bank money, proper, 
did not begin in America until after the Revolution, 
although nearly every colony had been, at one 
period or another, deluged with inconvertible paper 
money, under nearly every conceivable variety of 
form and of pretense. The great bank money coun- 
tries of to-day are the United States and the States 
of JN^orth- western Europe. 

182. The Coin Basis of Bank Money. — We have said 
that, in addition to the superior convenience of bank 
money over coin, the motive for issue is found in its 
comparative cheapness. Banking experience has 
shown that a much larger denominative amount of 
notes can be kept in circulation than is held of specie 
for redemption. 

On all this excess, the issuer of the notes derives 
a profit which is measured by the rate of interest on 
his loans, after deduction is made of the expense of 
maintaining the service. The metal thus displaced 
from circulation is exported, or melted down for use 
in the arts. 



SPECIE BASIS. 145 

The advantage to the community of this saving in 
the cost of the money used in effecting exchanges, is 
thus conceived by Adam Smith : 

"The gold and silver money which circulates in 
any country may very projjerly be compared to a 
highway, which, while it circulates and carries to 
market all the grain and corn of the country, pro- 
duces itself not a single ]iile of either. The judi- 
cious operations of banking, by x^roviding, if I may 
be allowed so violent a metaphor, a sort of wagon- 
way through the air, enables the country to convert, 
as it were, a great part of its highways into good 
pastures and cornfields, and thereby to increase very 
considerably the annual produce of its land and 
labor." 

183. The Proportion of Specie to Notes. — The amount 
of saving effected by the introduction of bank money 
varies, in the first instance, according to the propor- 
tion of coin, or '^specie," as it is commonly called, 
which has to be reserved to meet demands for the 
redemption of the notes : to serve, that is, as the 
basis of the circulation. 

That proportion is different in different couiitries, 
and often in different banks in the same country. 
The most common legal minimum reserve is one- 
third. 

Before the war of secession, the banks of the 
United States held an absurdly small amount of 
specie, the proportion in some States falling to ten, 
five, or even three per cent. But the so called bank 
money of many of the States of the American Union, 
during certain periods in the early history of the 
nation, was really nothing but inconvertible money, 



146 POLITICAL ECONOMY, 

hardly the pretense of redemption being main- 
tained."^ 

184. The Theory of Bank Money.— The view of the 
operations of bank money which is held by the great 
majority of writers of repute, in nearly all conn- 
tries, is that, when really and fnlly convertible into 
coin on demand ; with all reasonable facilities exist- 
ing for redemption, and with redemption actually 
taking place from time to time'; with a public 
opinion which does not allow to be questioned the 
right of any man any where, for any reason or for 
no reason, to require coin, for any and all notes he 
may hold ; and with exemplary penalties, f provided 
by law and -enforced by the courts, for the first 
failure or the slightest delay on the part of banks 
to make good their promises, such money acts in 

* Mr. Condy Raguet thus describes the action of American banks 
when in a state of suspension: 

" Banlcs, when they default in their payments, not only never asli 
the indulgence of their creditors for any specified extension of time, 
but they do not even think themselves under obligation to pay in- 
terest to the creditors for the funds they forcibly detain from them; 
nay, they frequently, in the midst of their insolvency, declare divi- 
dends of the very profits which actually belong to their creditors," 

f '* By convertibility of the paper," says Mr. Tooke, "according 
to the ordinary signification of the term when applied to bank notes 
in this country (England), is meant that the holder of a promissory 
note — payable on demand — may require payment in coin of a certain 
weight and fineness, and in the event of refusal or demur, such pav- 
ment is enforced by law against the issuer, to the utmost extent of 
his property. The issuer, whether a private or joint stock banker, is con- 
sidered to have failed. The circulation of his notes is at an end, and 
he is subject to the process usual in cases of insolvency." — [History of 
Prices.] Compare this with the state of things disclosed by Mr. 
Raguet in the foot-note last preceding. 



^ANK Money. 147 

all respects precisely as would a body of money 
composed wholly of coin of full mint-value. It is 
held to be subject to the law which governs the ter- 
ritorial distribution of money consisting of the pre- 
cious metals only ; and to have every economic 
virtue which belongs to such money, with the added 
advantage of greater cheapness and greater conven- 
ience in use. 

"We are willing," says Mr. Tooke, the great 
leader of the school of economists known as the 
advocates of the " Banking Princix3le," whose theory 
of bank money I have stated, "we are willing to 
consider a metallic currency as the type of that to 
which a mixed circulation of coin and x)aper ought 
to conform. But, further, w^e contend that it has 
so conformed, and must so conform, while the paper 
is strictly convertible." 

185. An Opposing View of Bank Money, — The view 
of bank money which has been stated in the fore- 
going paragraj)h is undoubtedly that which is held 
by a decided majority of writers of reputation in 
monetary science. An opposite opinion was long 
maintained by a school of economists in England, 
comprising the advocates of the so-called "Currency 
Principle," the leader of the school being Lord 
Overs tone. 

In the view of this school, something more than 
sound banking is needed to give a country good 
bank-money. If numerous, competing banks are 
left free to issue notes in such quantity and of such 
denominations as their own interests may dictate, 
with such sx)ecie reserves as their own prudence 
alone may suggest, there will always be the prob- 



14S POLiTtGAL ECONOMY. 

ability and often an extreme danger of over-issue, a 
body of bank money so composed not being amen- 
able wholly to the law of distribution wliicli governs 
metal money, but possessing the cax3ability of tem- 
porary and local inflation, ]3roducing for a time, and 
in a degree, the effects of inconvertible paper money. 

In 1844 the economists of this school triumphed in 
the enactment of the Bank Act of that year,^ which 
still governs the note-circulation of England. 

In the United States, owing doubtless to gross 
abuses of the right of bank-note issue, such as have 
been adverted to in a note on a preceding page, the 
views of the English Currency School obtained an 
acceptance among professional economists and 
writers on finance, even wider and more complete 
than in England, although in but few states did this 
lead to legislation in any degree comparable, in scope 
or stringency of operation, to the English act of 1844. 

186. The Currency Principle vs. the Banking Prin- 
ciple.— The question whether a body of money com- 
posed partly of coin and partly of bank notes fully 



* The principal features of tlie Act of 1844, as aflEecting the circu- 
lation, are as follows : 1st. The Bank of England is allowed to issue 
notes, in a constant sum of £15,000,000 without any specie basis. 
For all notes above this, it must have, po\md for pound, a specie re- 
serve, of which one-fourth may be silver. [This, in consideration of 
the commercial and political relations of England with India, which 
has silver money.] 

2d. The issue department and the banking department of the 
Bank are completely divorced, becoming as separate as the Customs 
and the Internal Revenue bureaus of our own Government. 

3d. No London bank can issue notes, nor can any bank chartered 
since 1844 ; while the issues of the English banks tlien existing are 
limited to their ordinary outstanding circulation prior to that date.^ 



BANK MONEY. l49 

convertible into coin, witli all whicli that implies, as 
stated in par. 184, acts in all respects as wonld a 
body of money composed wliolly of coin ; or, on the 
other hand, has the capability of being issned in 
local excess and so maintained for a long enough 
time to affect local prices, and thus initiate abnormal 
movements of trade and production predicated on 
such excess, I regard as the one open question in the 
theory of money. 

Brought up in the school which held the latter 
view, my own reading and reflection have confirmed 
me in the belief that there resides in bank money, 
even under the most stringent provisions for con- 
vertibility and the severest penalties for a failure to 
redeem notes, U23on demand, the capability of local 
and temporary inflation, as that term is defined in 
par. ] 64 ; but the arguments on the two sides of the 
question are so evenly balanced, and the statistical 
evidence adduced to support the one or the other is 
so ambiguous, that differences of opinion are likely 
long to exist between men of intelligence and candor. 
I freely confess that the preponderance of authorita- 
tive opinion in Europe is against the view which I 
hold. 



CHAPTER YIL 
The Reactiott of Exchange upot^ Peoduction. 

187. Evil Possibilities involved in the Division of 
Labor. — We have seen that the division of labor is 
an essential condition of large and varied production. 
But the division of labor, when carried far, involves 
IDOssibilities of loss and disaster, which become more 
and more serious as production becomes more and 
more extended and complicated. 

The cause of the trouble adverted to is found in 
misunderstandings between producers and con- 
sumers, whom it is the very nature of the division of 
labor to set apart, and, in an advanced industrial 
state, to set very widely apart, often by half the cir- 
cumference of the globe. 

188. — It is evident that, were there no division of 
labor into separate occupations, the relation between 
production and consumption would be a very simple 
one. Each man would work by himself, for himself, 
producing those things, and those only, which he 
wished personally to eat, drink or wear, or house or 
warm himself withal. There would here be no ques- 
tion of a market, for every man would be his own 
customer. 

From this point we may mark off three stages of 
industrial development. 

189. The First Stage. — The first is where distinc- 
tion of trades is introduced, and men no longer con- 



DIVEB81FIGA TION OF IND TJSTBY. 151 

sume all, or perhaps any part, of the articles they 
have produced ; yet where consumers live near the 
producer, and are personally known to him. In this 
condition, production, except in agriculture, gen- 
erally waits for an order from the consumer ; or, if 
goods are produced in advance of an order, the kinds 
are few, the forms are simple, the styles standard, 
and there is generally the reasonable exjjectation 
that some certain person, or some one out of a cer- 
tain group of persons, will surely and soon need the 
goods, and will become the consumer. 

Here, we see, there is not much liability to a mis- 
understanding between producer and consumer. 

190. The Intermediate Stage. — The second stage is 
where the element of personal acquaintance between 
producer and consumer disappears. Production no 
longer waits for orders, but anticipates demand. 
Goods are produced for a general market, and upon 
a calculation of the quantity probably to be re- 
quired. 

Yet it is still true that production is mainly carried 
on b}^ artisans working singly or in groups. Tools 
and implements are still simple and inexpensive ; 
there is little of "plant" or fixed capital ; while of 
the products we may say that fashions are few and 
styles remain standard through long periods of time. 

Here, manifestly, the ojjportunity for misunder- 
standings between producer and consumer exists in 
a much higher degree than under the former con- 
ditions described ; yet here production may still go 
on with tolerable uniformity : all hands working 
steadily through all the seasons of the year, with a 
reasonable assurance that all goods which are well 



153 POLITICAL ECONOMY. 

made and offered at fairly remunerative prices, will 
lind a market. 

191. The Final Stage. — The third stage is reached, 
when increasing facilities of communication make 
the whole world one trading community ; when pro- 
duction becomes highly diversified, and the special- 
ization and localization of trades proceed so far that 
one country, or perha^DS one group of towns, pro- 
duces the greater part of all the goods of a certain 
sort which are consumed throughout the world ; 
when luxury and refinement of living are carried to 
the maximum, so that not only are the classes of 
goods produced almost indefinitely multiplied, but 
fashions and modes enter till standard styles almost 
disappear, each season bringing minute modifications 
of demand. 

It will readily appear that conditions like the 
foregoing increase enormously the liability of mis- 
understanding between producers and consumers. 
The possibilities of error in supplying the markets, 
no longer of a village, but of the world, become 
tremendous. 

192. Fluctuations in Production.— Such being the 
conditions under which production takes place, un- 
der the modern organization of industry, we note 
that there is in the nature of the case a continuous loss 
through the failure of the producing body to meet, 
promptly and precisely, the demands of the body of 
consumers. Wherever, from any cause, there is a 
failure correctly to anticipate those demands and 
supply them perfectly, in time, in degree, in form, 
loss of value results. 

But the loss which we had chiefly in view in be- 



WASTE OF PROD UGTIYE FOItCR 153 

ginning this chapter, is not the steady, continuons 
loss of value clue to the inability of those who direct 
production to comprehend, fully and seasonably, 
the varying demands of distant markets, but the 
occasional loss resulting from tlie frequent and often 
furious fluctuations which are involved in the modern 
organization of trade and industry. 

From that organization the alternation of highly 
stimulated and of deejDly depressed production ap- 
pears to be inseparable. 

193. So frequently during the past hundred years 
have trade and industry made this weary round, that 
writers on finance have undertaken to establish the 
law of the X3eriodicity of panics and hard times ; 
and many men of business entertain the notion, not 
only that such disasters must come, but that they 
must come about so often. 

However this may be, it seems clear that, under 
the conditions depicted in the first part of this chap- 
ter, it is inevitable that the producing and exchang-^ 
ing body should alternate frequently and even vio- 
lently between a state of dex)ression or of partially 
susjjended activity, and a state of highly animated, 
excited, almost convulsive exertion. 

194. It is evident that this is not an order of things 
under which the largest production of wealth takes 
place. Each extreme involves loss of productive 
force. There is much misdirection of energy, much 
waste of material, much vital injury to labor ]30wer 
and capital power, in the haste and strain and fever 
of highly stimulated effort ; while the long, dull 
spell of inactivity that succeeds is not given wholly 
to the recuperation of exhausted energies, the re- 



154 POLITICAL ECONOMY. 

newal of stocks of materials, the repair of macliinery 
and plant ; what is more than this, it is not even a 
waste of time, merely, involving a proportional loss 
of productive power; it becomes itself a cause of 
waste and mischief ; it induces in the working classes 
a lethargy, a despondency, a recklessness, which are 
forces productive of evil ; it generates habits of 
lounging and of drinking, perhaps of tramping, 
which may not be shaken off, even with renewed em- 
ployment. 

195. " Hard Times."— There is one industrial phe- 
nomenon of very great significance in respect to our 
question, why the actual production of a community 
comes so far short of its j)roductive capability, and 
that is, the long continuance of the periods of in- 
dustrial depression and of restricted production. 

It will readily appear that, after a so- called panic 
or crisis, the agencies of trade and industry will re- 
quire time to refit ; that the track must be cleared 
of the wreck, and the places left vacant by the 
casualties of the great crash must be filled by new 
men ; but the actual time covered by the period of 
depression is sometimes much longer than can be 
accounted for by the mere loss and wreckage of a 
panic. ' ' Hard Times ' ' are protracted long after the 
capital power and the labor power of the community 
are, considered from a merely material point of view, 
in condition to resume their interrupted functions. 

After the panic of 1873 in the United States in- 
dustry did not revive, to reach any thing like its for- 
mer proportions, until 1878 or 1879. During all that 
period vast amounts of labor power and capital 
power remained unproductive. Hundreds of thou- 



HARD TIMES. 155 

sands of laborers were unemployed ; and even greater 
numbers were employed only on half or three-quar- 
ters time. Hundreds of furnaces were out of blast ; 
thousands of water wheels ceased to turn ; thou- 
sands of engines stood still. 

Yet, during all this time, all these workmen had 
occasion to consume food and clothing for them- 
selves and their families ; needed to work to earn 
the means, and were honestly willing, yes, heartily 
desirous to work. All this time all these owners of 
capital were ready to secure a return for their in- 
vestments, if they could find opportunity ; all these 
conductors of business were eager to win a profit by 
employing their abilities and ex]3erience in produc- 
tive industry. 

Why, then, was it, when all were willing to work 
and needed to work, that they did not work, per- 
haps would say, could not work? What was the 
force that kept all these laboring men, all these 
water wheels and engines, all these capable conduct- 
ors of business, idle during so long a time, so much 
against their interest and their wishes ? 

196. An Explanation Offered.— We have seen that, 
as society makes progress towards a minuter organ- 
ization of industry, productive capability is enhanced, 
but that, coincidently, at each stage, the opportuni- 
ties for misunderstanding between the body of pro 
ducers and the body of consumers are greatly mul- 
tiplied, while labor power and capital power fall 
more and more under the control of men of excep- 
tional abilities for the conduct of business, with 
whom comes to rest all initiative in production. 

jN"ow, if we examine the list of articles sold in the 



156 POLITICAL ECONOMY. 

market, in a modern community, we shall find some 
of tliem supplying wants whicli are constant and 
vital. We sliall find others which minister to the 
most delicate tastes or gratify only the merest cas- 
ual fancies. 

197. The Shock.— Let US suppose, as the result of a 
period of prosperity, the variety of products to have 
been carried to a very high point, when a disaster, 
primarily affecting either industry or trade, it mat- 
ters not, befalls a community. It may be a great 
fire, or a great flood, or an attack of yellow fever, or 
the destruction of some leading crop. JN'o matter 
where it comes from, or where it first strikes, the 
immediate effect is to diminish the productive power 
of the community, as a whole. At once the con- 
sumption of those articles which are least essential 
to comfort and decency is, in greater or less degree, 
checked. 

198. The Necessary Effect.— It is evident that, were 
the community j)erfectly intelligent and self-pos- 
sessed, the ultimate result of this would be the dis- 
tribution of the whole initial shock over the entire 
producing body. No addition would be made to the 
force of the shock as the movement proceeded, and 
the effect upon each successive group of producers 
reached would be less and less. Those producing 
articles the most essential to life, health and social 
decency would suffer to hardly an appreciable ex- 
tent, as the wave set in motion by the rock thrown 
into the center of the lake becomes the merest rip- 
ple against the shore. 

This is all that is necessarily involved in the prop- 
agation, through economic media of perfect elas- 



ECONOMIC SHOCKS. 157 

ticifcy, of an original blow like tliat assumed ; and, 
in fact, industrial injuries are at times distributed in 
this way tlirougliout the j)roducing body, without 
panic, without ai^prehension, even without observa- 
tion. 

199. The Possible Effect.— Let, however, the shock 
but be sharp and severe, and communicated in some 
peculiarly startling form, and let it occur when the 
public mind is in an anxious, a]3prehensive mood, or 
when the commercial body is unstrung by political 
or social disturbances ; and we may see the impulse 
propagated with ever-increasing force, from subject 
to subject, till the movement acquires fearful vio- 
lence. 

A manufacturer feels the demand for his goods 
fall off somewhat. In ordinary times, he would re- 
ceive the fact as an intimation to reduce his produc- 
tion ; but only to a corresponding extent. Indeed, 
in good times he would receive that intimation in a 
somewhat skeptical spirit. He would not be dis- 
posed to believe that any serious check was to be 
experienced. He would look to see trade start up 
again at the opening of the next season, and, in this 
mood, would reduce his production somewhat less 
than correspondingly. To that extent, he would 
sjjeculate : that is, he would anticipate events and 
discount the future. For the moment, then, he 
would transmit the shock, not aggravated but miti- 
gated. 

But let the shock, as we said, be at first very se- 
vere, and let it come upon the jjublic mind in a sus- 
picious mood, and the matter will take another turn. 
The merchant feels the demand for his goods fall 



158 POLITICAL ECONOMY. 

off abruptly. He fears there is more to come. He 
is determined not to be caught with a large stock on 
his hands, and, therefore, in his orders to the man- 
ufacturer, he exaggerates the natural and proper 
effect of the change in the market. The manufac- 
turer, on his part, knows nothing directly of the 
actual falling off in demand. He only learns it as 
it comes to him heightened by the apprehensions of 
the merchant. In his turn, he exaggerates the evil 
and reduces his production more than proportion- 
ally. His anxiety now is, not to make a i3rofit ; but 
to avoid loss. He knows he will be safe if he runs 
his mill on half or three-quarters time ; he right- 
fully fears that he may suffer severely if he runs 
full-time. 

200. How Far May This be Carried ? — Two questions 
arise upon this view of the power of apprehension 
and suspicion to aggravate the force of any indus- 
trial or financial shock in checking production. The 
first : how far may it be carried ? the second, how 
long may it last? 

May the movement to check production proceed 
until all industry is locked fast in '' a vicious circle " : 
no one producing, because others will not consume, 
while no one is able to consume the products of 
others because he himself produces nothing with 
which to buy them ? 

I answer, no. The staple industries, especially 
those yielding the absolute necessaries of life, will 
never be suspended. The demand for their products 
is so constant and certain that panic has little power 
over them. These, therefore, continue to produce 
nearly as much as before ; not, indeed, quite so 



SUSPENDED PRODUCTION. 159 

much, because there will be individuals thrown out 
of em]3loyment who are unable to find a new place 
where they can produce enough to purchase even 
the barest subsistence. Other groups, moreover, 
having to do with articles essential to comfort and 
social decency, will withstand the shock communi- 
cated to them sufiiciently to maintain a production 
not very far below that of good times. 

Now^ so long as the former produce liberally, and 
the latter still j)roduce considerably, all persons em- 
ployed within those groups will have the means of 
jmrchasing fjeely the products of industries further 
down the list ; and so production will be kept alive, 
though but just alive, it may be, in those industries 
which produce articles not essential to life, or health, 
or decency. 

201, How Long May Such a Condition Last? — I an- 
swer : in theory, it may last indefinitely. Practically, 
it is liable to be terminated, after a longer or shorter 
period of suspense, by reviving courage and enter- 
13rise on the part of men of affairs, or through the 
stimulus to i)roduction administered from, it may 
be, some unexx)ected quarter. It may be so slowly 
as to be almost imperceptible ; it may be so rapidly 
as to outrun calculation, that the expansion takes 
I)lace. This will depend much on the natural tem- 
per of the community ; much on the immediate 
cause provoking renewed enterprise ; much on ac- 
cident. 

The one essential condition is that speculation be 
initiated, that is, that men begin to look ahead, to 
anticipate demand, and to discount the future. 

One man begins to produce, no longer on orders, 



160 POLITICAL ECONOMY. 

no longer cautiously and fearfully, as if it were too 
mucli to believe that liis goods will be taken off liis 
hands, but in a more sanguine spirit, assuming the 
initiative in production and boldly encountering its 
risks. 

Producing more largely, his workmen have more 
to offer for the products of other industries, which 
is of itself a reason for a larger production in these 
branches, whose managers and proprietors respond 
in the same spirit. Finding the demand increasing, 
they act as if they believed it was about to increase 
still further. They produce somewhat in anticipa- 
tion, and thus give their hands more to offer in ex- 
change for the products of still other industries ; and 
so the movement proceeds, gathering force as it goes, 
and production swells continually under the conta- 
gious influence of hope and courage, just as before 
it shrank and shriveled under the breath of fear 
and panic. 



PART IV. 
DISTRIBUTION. 



CHAPTER I. 

The Paeties to the Disteibution of Wealth. 

202. Distribution as a Department of Political Econo- 
my.— Under the title, Distribution, we inquire, what 
are the forces which divide wealth among the seve- 
ral persons, or classes of persons, who have taken 
part in its production ? 

In a primitive condition of society, the problem of 
distribution is a simple one. Three hunters join in 
an expedition, and at the conclusion of the day's 
or the week's chase, divide their game into three 
equal parts. If boys or cripples, or men of less 
than ordinary force or skill, are taken into the part- 
nership, it is easily determined what portion of a 
full man's share each such person shall receive. 

In a highly organized community, however, the 
division of the product of industry into shares cor- 
responding to the number of persons who have taken 
part in production, is a very complicated problem. 

203. The Division of the Web of Cloth.— For exam- 
ple, let us take the case of a cotton factory, at 
Lawrence, which produces in a given time a million 
yards of cloth. We may suppose that this is all 
woven in one piece, and that each person who has, 



162 POLITICAL ECONOMY. 

in any way, contributed to tlie making of this giant 
web, advances in a certain order to receive his 
share. ^ 

The agent for the water company first appears, 
and cuts off some thousands of yards. Then comes 
the owner of the land on which the mill is built, and 
carries off, perhaps, a piece fiYQ times as large ; next, 
the owner of the mill, who takes the largest piece 
of all ; next, the man who gave the use of the 
machinery and loaned the working capital, and now 
measures off so many miles of the cloth as his 
share. 

So far, all has gone smoothly. Though the manu- 
facturer has stood by and seen the fearful inroads 
made upon the web by the successive claimants, 
little has been said, and that, in a low tone and in a 
very business-like way. Some reason is known to 
him why each of these persons should receive so 
much and no less ; some calculation which he is able 
rapidly to make maintains a complete understanding 
between him and them. 

Now, however, the scene changes ; there remain 
but two parties as claimants to the six or seven 
hundred thousand yards that are left. On the one 
side stand a crowd composed of persons engaged in 
the mill as overseers, as clerks, as mechanics, as 
laborers, as "operatives," in all, some hundreds of 
men, women and children, of varying degrees of 
strength, skill and intelligence ; on the other side, 
stands the manufacturer. All that these do not take, 
will be his ; and as piece after piece is rapidly cut off, 
he seems to fear that not enough will remain for him, 
while each of them appears disaffected that his own 



TEE PROBLEM OF DI8TBIB TITION. 163 

share is not larger, deeming it especially a liardship 
that after he and his comrades are served, so much 
will be left to the manufacturer. 

At last the manufacturer is left with his share. If 
it has been a good season, and all has gone well ; if 
the cotton has turned out of good quality, well j)re- 
pared and baled in Mississipj)i ; if the weather has 
been propitious, with just enough of heat and of 
moisture for the quickest and most uniform spinning; 
if there have been no floods in the river, and no low 
water, the roll of cloth which the manufacturer will 
carry back into the warehouse will be large, and his 
face will wear a contented look. If, on the other 
hand, any one of a dozen untoward accidents, rea- 
sonably to be apprehended, has occurred, his share 
will be less, perhaps little. 

204. Why is it?— It is under the present title that 
we are to inquire why it is that each of these claim- 
ants on the product of the cotton factory takes so 
much and takes no more. Of course, in the imme- 
diate instance that reason is found in the force of 
contract. All the other parties had agreed with the 
manufacturer to allow him the use of their property, 
or to render him their services, at certain rates. But 
why did they contract at those rates, and not at 
higher ; and why will they, as they probably will, 
immediately proceed to make new contracts, at the 
same, perhaps at lower, rates ? 

Why, in particular, is it that the division of the 
product is effected with so little of friction or com- 
plaint, so quickly, and with so good a mutual un- 
derstanding, as between the manufacturer and the 
water company, the owner of the ground, the owner 



164 POLITICAL ECONOMY. 

of fche mill, the owner of the machinery and the 
working capital ; while, between the manufacturer 
and the ''hands" there is so much of dissatisfaction 
and jealousy, of complaint and irritation ^ 

205. Distinction between the Exchange of Services 
and of Commodities.-^ Among those writers who have 
defined political economy as the Science of Ex- 
changes, distribution is not recognized as a separate 
department of inquiry, involving princij^les peculiar 
to itself. These writers find that the subjects of ex- 
change are, broadly speaking, two, viz., services 
and commodities, or, labor and the products of past 
labor. To carry forward this distinction is not con- 
sistent with the simplicity of the science which 
these writers have in contemj)lation. The difficulty 
is soon resolved. By analysis they discover that 
commodities are, after all, nothing but services 
which have taken-on a material form, and thereafter 
they speak only of services. This effected, it fol- 
lows that the distinction between the Distribution 
and the Exchange of wealth falls to the ground. 
There is no longer any need for the former term in 
political economy. 

206. This View a Mistake.— " During the present 
century," says the Duke of Argyle, in his Reign of 
Law, ' ' tw^o great discoveries have been made in the 
science of government : the one is the immense ad- 
vantage of abolishing restrictions upon trade ; the 
other is the absolute necessity of imposing restric- 
tions upon labor." 

I quote this passage, here, only to call attention 
to the clear, strong antithesis in which this eminent 
philosophical statesman places services and commod- 



SERVICES VS COMMODITIES. 1S5 

ities. His statement does not exaggerate the gen- 
eral and still growing consent of social philosophers 
and legislators, that the rendering of services differs 
so widely from the exchange of commodities that 
the two must stand in very different relations to 
legislation. More and more fully has this distinc- 
tion come to be recognized. 

Equally against the pressure of enormous vested 
interests, and against the protests of professional 
political economists, the legislation of almost every 
enlightened country has progressed by steady steps, 
through the last sixty, forty, and especially during 
the last twenty years, in the direction of discrimi- 
nating vitally between commodities and services, 
allowing continually greater and greater freedom of 
contract in respect to the former, and bringing the 
contracts which involve the latter more and more 
comj)letely under the authority and supervision of 
the State. 

207. A Contest, though not a Destructive Contest.— 
It will be noted that the distribution of the product 
of industry involves what may be termed a XDerj^et- 
ual contest between the parties to production. This 
contest is not a destructive one, since the interest of 
each of the participants requires the existence, and, 
by consequence, the sustentation, of all the others. 
Yet, within the limits which are consistent with this, 
there is ox3position of interests, since what one gets 
the other cannot have ; and there is not unlikely to 
arise antagonism in the methods of action of any 
two or more parties, seeking their sei3arate interests. 

208. The Parties to the Distribution of Wealth.— 
This contest is, in the last analysis, between Individ- 



166 POLITICAL ECONOMY. 

uals. The real or supposed common interests of a 
number of producers may create a supposed class 
interest which will lead them to act in concert ; but, 
as a rule, the efforts of individuals are directed to a 
personal benefit. Inasmuch, however, as it would 
be im]30ssible to work out the problem of distribu- 
tion with reference to each man, woman and child 
of any considerable community, we may aggregate 
individuals, according to what they have in common, 
into classes, larger or smaller, and may seek for the 
general law which governs the efforts of the members 
of each class towards the acquisition of wealth. 

209. Classes in Distribution.— Even if we disregard 
petty distinctions and inconsiderable exceptions, the 
prime classes appearing in distribution will vary in 
different countries. A classification which would 
fully meet the facts of industrial organization in 
India, would omit distinctions of prime importance 
in England. 

We will consider for our present purpose the in- 
dustrial organization of England. We take this, 
because it is the most highly developed organization 
known to industry; because it is largely reproduced 
in the United States and. on the continent of Europe, 
and in Canada and Australia, and is every where, 
among progressive peoples, more and more widely 
extending from year to year ; and also because it 
will be easier for the reader to work out for himself 
the problem of distribution in countries of lower or- 
ganization, after considering how wealth is appor- 
tioned among its producers in England, than to go 
from the simpler to the more complex forms of in- 
dustrial life. 



THE PARTIES TO DISTRIEVTION. 167 

Under tlie industrial system wliicli we have taken 
for the purposes of the i^resent discussion, we have 
four classes of claimants upon the product of in- 
dustry, and that product is accordingly divided into 
four grand shares. These classes and the shares re- 
spectively received by them may be exj)ressed as 
follows : 

1. The landlord, receiving rent. 

2. The capitalist, receiving interest. 

3. The emi3loyer, or entrepreneur, receiving profits. 

4. The employed laborer, receiving wages. 

The reasons for naming these several claimants in 
the order just given, will appear as we make prog- 
ress in the discussion of the forces which effect the 
distribution of wealth. 



CHAPTER 11. 
Rent, 

210. Definition of Bent.— Rent is the term applied 
to the remuneration received by the land- owning 
class for the use of the native and indestructible 
powers of the soil, or, as it might be expressed, for 
the use of natural agents. 

The term land, or natural agents, must be under- 
stood to inclade not only arable land, but pasture, 
timber lands, mineral deposits, water privileges and 
building sites. For the present discussion, however, 
it will be best to take our illustrations from the oc- 
cupancy and cultivation of arable land. 



,.- -r8- 



211. The Origin of Kent Illustrated.— Let us suppose 
a community, isolated from all others, to occupy a 
circular tract of land divided as in the above 
diagram, into four sectors equal in extent but so 



RENT, 169 

differing in fertility tliat one piece will, with so many 
days' labor in the year given to plowing, cul- 
tivating and harvesting, yield 24 bushels of 
wheat x^er acre, while the second will yield, 
with the same amount of labor, but 22 bush- 
els, the third but 20 bushels, and the fourth but 18. 
Now the assumption we have made as to differing 
degrees of fertility in the soil of the several tracts 
is not an extravagant one. '' A quarter of wheat," 
says Mr. McCulloch, "maybe raised in Kent, or 
Essex, or in the Carse of Gowrie, for a fourth or fifth 
part, perhaps, of the expense necessary to raise it 
on the worst soils under cultivation in the least fertile 
parts of the kingdom." 

In order to further simplify the problem, we will 
suppose that all the inhabitants of this community 
reside in a village at the center. 

212. The Ante-Kent Stage of Cultivation.— Let the 
first case taken be when the village is yet so small 
that all the wheat required for the subsistence of the 
]3opulation can be raised upon a portion only of what 
we will call the 24-bushel tract. If that tract be 
held by a number of competing owners, each acting 
for himself, seeking his individual interest, no rent 
will be paid, or only a rent so small that for pur- 
13oses of economic reasoning we may disregard it 
wholly. Each owner of land in this tract will be 
desirous of securing for himself whatever compen- 
sation, if any, is to be paid for the use of land. But 
as the entire tract is not required for cultivation, 
and, as, consequently, only a part of the owners can 
receive any comx)ensation for their land, an active 
competition will set in, each man offering the use of 



170 POLITICAL ECONOMY. 

his land for less and less, in order to get something, 
until rent falls to a minimum, or disappears alto- 
gether. 

213. Belation of Waste to Rent.— And it is here we 
seethe significance of the word, "indestructible," 
w^hich we used, a page or so back, in speaking of the 
" native and indestructible powers of the soil." All 
scientific reasoning about rent is based on the as- 
sumption that the owner is to receive it back unim- 
paired as a productive agent. N^ow, it is always pos- 
sible for a tenant to impair the fertility of land, first, 
by intentional abuse, or, secondly, by taking away 
its productive essences, in the crops of successive 
years, without returning anything to it in the shape 
of manures or other fertilizers. 

It is only upon the above assumption that it w^ould 
be true that each owner of land in the twenty-four 
bushel tract would prefer to lease it for a very small 
rent, approaching nothing, rather than not lease it 
at all. Unless he could be protected, by law or con- 
tract, against waste by the tenant, he might prefer 
to let his land go unoccupied. 

214. Rent Emerges.— Let US now advance to the sec- 
ond stage. We will suppose that the population of 
the village has increased to such an extent that the 
whole of the twenty-four bushel tract will no longer 
raise, when cultivated as it has heretofore been, all 
the wheat required for the subsistence of the com- 
munity. Cultivation will then be driven down to an 
inferior grade of soils. A part of the second tract, 
the twenty- two bushel tract, will be taken up. 

Do you ask, why not increase the amount of labor 
upon the twenty- four bushel tract, and so raise more 



POPULATION AND RENTS. 171 

wheat to the acre, until the wants of the community- 
are satisfied ? I answer, because of the great fact 
of Diminishing Returns in Agriculture. In every 
country of the world, and in every parish or town- 
ship of every country, cultivation is seen descend- 
ing to the grades of soils below the best, because the 
yield from the highest grades cannot be increased 
proportionally to an increase of labor exx)ended 
thereon. 

Cultivation having been driven doAvn to the twen- 
ty-two bushel tract, rent will now be paid for the 
twenty-four bushel tract, and for each portion of it. 
Why ? Because any person desiring to raise wheat 
may better pay something for cultivating a portion 
of that tract, than cultivate a portion of the new 
lands for nothing. 

How much will he pay 1 Exactly the difference 
between the crops to be grown on the two soils, with 
the same application of labor, i. 6., two bushels, 
since he can afford to pay this rent rather than move 
to the less productive soil ; and as some must so 
move, the landlord will be able to exact the maxi- 
mum rent from the present cultivator : if not, from 
some other. 

215. The Effect of Increasing Population.— Let us 
now advance another stage, and supj)ose the increase 
of population to require the cultivation of the 
twenty-bushel tract. The effect of this downward 
movement of the limit of cultivation will be two- 
fold : 

First, the twenty-two bushel tract will begin to 
bear a rent, since any cultivator can better afford to 
pay a certain rent for the privilege than occupy a 



172 POLITICAL ECONOMY. 

portion of the new land for nothing. The amount 
of that rent will be determined by the difference in 
productiveness between the two tracts, being, in the 
case supposed, two bushels, an acre. 

Secondly, the tract first cultivated now brings its 
owner a rent (24 — 20=-4), not of two bushels, bat 
of four. It is no better land than it was before ; it 
produces no more wheat under the same application 
of labor and capital ; yet it yields its owner a rent 
twice as great as before cultivation descended to the 
third grade of soils ; and that increase of rent takes 
place simply and solely because cultivation has so 
descended. 

And if, again, we suppose that the increasing 
needs of the community require the cultivation of 
the eighteen-bushel tract, even the twenty-bushel 
tract will begin to bear a rent, viz., two bushels, an 
acre, while the rent of the next tract upon the scale 
of productiveness will rise to four bushels, and that 
of the most productive land to six bushels, or three 
times the original amount. 

216. The Law of Rent.— If we have correctly traced 
the course of self-interest, in dealing with the occu- 
pation of land, under the necessity of a resort to in- 
ferior soils for the sustentation of the community, 
we are prepared to state the law of rent : 

1. Rent arises out of differences existing in the 
productiveness of different soils under cultivation at 
the same time, for the purpose of supplying the same 
market. 

2. The amount of rent is determined by the degree 
of those differences. Specifically, the rent, of any 
piece of land is determined by the difference between 



TRANSPORTATION. 173 

its annual yield and that of the least productive 
land actually cultivated for the supply of the same 
market, under equal applications of labor and capi- 
tal, it being assumed that the quality of the land as 
a productive agent is, in neither case, impaired or 
improved by such cultivation. 

217. Cost of Transportation.— By productiveness 
throughout the foregoing discussion has been in- 
tended net productiveness, the cost of transporta- 
tion to market being first deducted. 

In the illustration as thus far given, the cost of 
transportation has been left out of account. Let us 
now, however, suppose a tract to be brought under 
cultivation for the purpose of supplying this mark- 
et, situated at so great a distance as to make the 
cost of transportation a considerable element in the 
problem of rent. 

If the reader will recur to the diagram he will see 
that we have marked out a tract, at some distance 
from our village, the path thereto bearing the 
legend — 2, by which we have intended to signify 
that the cattle and men taking the grain to market 
will eat, going and returning, two bushels out of 
the produce of each acre. The net productiveness 
of the tract will then be, for the purpose of deter- 
mining its rental, not 23 bushels, but 21. It will not 
be cultivated until after the first two tracts have 
been completely occupied. It will then be culti- 
vated, but will bear no rent so long as its produce, 
combined with that of those two tracts, sufiices for 
the sustentation of the community. But when the 
increasing needs of population ^rive cultivation 
down to the 20-bushel tract, the tract in question 



174 POLITICAL ECONOMY. 

will bear a rent of one bushel, which will rise to 
three, when cultivation seeks the 18-bushel tract. 

218. A New Continent.— The reader will further 
note that we have connected the same community 
with the projecting edge of a continent, which we 
have named America, by a dotted line, to which we 
have attached the sign and iigure — 8, by which we 
intend to represent that portion of the crop of the 
year which is given to railway companies and the 
owners of vessels for transporting the grain to the 
English market. The net ]3roduce of these lands is, 
then,_ 20 bushels. Though they actually yield 28 
bushels to the acre, with the given application of 
labor, they will bear no rent till the 18 bushel tract 
of English land is brought under cultivation, when 
they will yield two bushels rent an acre. 

But suppose this American land is of vast extent, 
and upon it can be raised all the grain which this, 
or any, market requires, what will be the effect upon 
rents ? Why this : no one will now cultivate the 
English 18-bushel tract. This lowest grade of soils, 
therefore, falls immediately out of cultivation. 
With what effect upon the rent of other parcels of 
land ? The 24-bushel English tract has been bring- 
ing its owner 6 bushels, an acre, rent, because, and 
only because, the 18-bushel tract was necessarily 
brought under cultivation to subsist the commu- 
nity. JN'ow, however, that American land, with a 
net productiveness of 20 bushels (28—8=20), is 
found in unlimited amount, the limit of cultivation 
is pushed backwards, and the best of the English 
tracts brings but four bushels rent ; the next best 
but two 5 the 20-bushel tract now bears no rent, as 



BENT AND THE PBIGE OF LAND. 175 

it is in competition with free American land of 
indefinite extent. 

Again, assume that the introduction of Bessemer 
steel rails and various improvements in ocean navi- 
gation reduce the cost of transportation of American 
grain to seven bushels out of every 28, what will be 
the effect on English rents ? Clearly, the American 
land now has a net productiveness represented by 
21 bushels, and, as it is of unlimited extent, all the 
English 20-bushel land is thrown out of cultivation 
— for who would wish to cultivate it ? and the rent 
of the best English land is reduced to three bushels, 
and that of the second grade to one. 

219. Relation of Rent to the Price of Land.— We have 
stated the economic doctrine of rent. The price of 
land and its rental value stand in a certain.necessary 
relation to each other. But while the relation be- 
tween the two is a necessary one, being no less 
direct than that of cause and effect, the ratio 
between the rent of land and the price of land 
varies widely. In some countries, where the amount 
of accumulated capital is large ; where a high de- 
gree of civil security exists ; where the rights of 
property are respected, and where the ownership 
of land carries with it social distinction and perhaps 
political influence, the price of land may be twenty, 
twenty-five, or even thirty times the annual rental. 
In other countries from the failure of one or all of 
the conditions indicated, land may not sell for more 
than fifteen, ten, or even five times its rental. 

220. Rent Forms no Part of the Price of Agricultural 
Products.— From the law of rent, as it has been 
stated, we deduce the very important proposition 



176 POLITICAL ECONOMY, 

that rent forms no part of the price of agricultural 
produce. 

No proposition which the political economist has 
occasion to announce is so startling, at the first hear- 
ing, as this ; nor does any other have to contend 
against such persistent incredulity ; and, yet, none 
can be more clearly established. We have seen that 
in the same market, at the same time, there is but 
one price for different equal portions of any com- 
modity ; and we have also seen that normal price 
is fixed by the cost of producing that portion of the 
supply which is produced at the greatest disadvan- 
tage. 

Apply these principles to the case in hand. En- 
gland does not raise all the wheat needed for the 
subsistence of her population. Besides cultivating 
the most fertile of her own fields, she makes 
heavy draughts upon the United States, France, 
Egypt, Hungary, and the Black Sea regions. For 
the wheat of all these countries, however, so far as 
it is of the same quality, there is but one price. 
That price is fixed by the cost of that part of the 
supply which is raised at the greatest disadvantage, 
which means, in this case, at the greatest distance, viz., 
on the plains of Dakota. This wheat the English 
must have : the proof of which is found in the fact 
that they do have it. Now, if they will have it, 
they must pay the cost of raising it, that is, must 
pay enough to induce men to go to that far-off 
country, undergo the privations of a frontier life, 
undertake all the risks of pioneer agriculture, and 
submit to enormous charges for the transportation 
of their product by land two thousand miles to the 



BENT AND THE PRICE OF PRODUCE. 177 

seaboard, and, then, three thousand miles, by sea, 
till it is laid down in Liverpool. 

If the English will not pay this price, they cannot 
have the wheat. That they get the wheat is proof 
enough that they pay this price, which, in turn, 
sets the price for all the wheat raised in England, 
and for all the wheat brought thither, whether from 
France, from Egypt or from the Black Sea, altogether 
irrespective of the cost of raising it in any other 
locality than that where it is produced at the greatest 
disadvantage. 

Wheat may be raised on the fertile farms of Mid- 
dlesex at an actual cost not exceeding two shillings 
a bushel ; but the Middlesex farmer will not, on that 
account, sell his wheat below the market price, 
say six shillings, which price is fixed, as we have 
seen, by the wheat from America. The difference, 
four shillings, is to be proht for somebody ; and we 
will now x^roceed to show that this body must be 
either the landlord or the tenant, not the agricultu- 
ral laborer, and not the consumer of flour. 

221. What Would Happen if Rents Were Remitted ? 
— Perhaps w^e shall best make this appear by means 
of an illustration. Let us suppose a philanthropic 
gentleman to call his tenants together, and tell them 
that, in consideration of the hard times and the 
suffering of the poor he has determined to remit 
one-half of the rent of all his farms, so that the 
farmers may be enabled to sell wheat at a lower 
price, and thus the poor be enabled to buy bread at 
a cheaper rate. What would be the consequence 'I 
Doubtless all the tenants would accept the proffered 
terms cheerfully. But would they sell the wheat a t 



178 POLITICAL ECONOMY. 

any lower price 'i Why should they ? They can 
get the market price for it, and that price is not fixed 
by the cost of raising wheat on their farms, or on 
any farms for which rent is paid. It is the no-rent^' 
land that raises that last portion of the necessary 
supply of wheat which fixes the price of all wheat. 

But suppose, to imagine a most improbable case, 
that some one out of the fifty tenants on this estate 
were to go to the dealer in grain to whom he was 
accustomed to sell his crop, and say: "Mr. B., 
inasmuch as my landlord has remitted half my rent, 
this year, I offer you my wheat a shilling less a 
bushel, in order that you may sell it at a correspond- 
ing reduction to the baker." What would the grain 
dealer do ? Clearly he would take the wheat, at the 
reduced price offered ; but would he sell it to the 
baker for any less 1 

But perhaps it is said, we concede that the farmers 
will not sell their wheat at any lower price, on account 
of the remission of rent ; but they surely will raise 
the wages of their laborers correspondingly. Why 
should they? They can make presents to their 
laborers, just as they could make presents to grain 
dealers or bakers, but we are talking now about 
business, and, as a matter of business, why should 
these fifty persons raise the wages of their laborers, 

*Tlie United States gives any settler in Minnesota, or Daliota, or 
Nebraska, or on any of tlie public lauds, wlio will declare an intention 
to become a citizen, a farm of 160 acres, exacting only a registration 
fee of $26 . The annual interest on $26, at 6 per cent ., is $1 .56, so 
that the settler gets the land on an annual payment of a cent an acre . 
A rent of a cent an acre may be called no-rent, and these are the 
lands we have called no-rent lands. 



^ 



TBS: ECONOMiG DOGTRINE. 179 

in consequence of the generosity of tlieir own land- 
lord 1 The laborers were willing to work for them, 
before, for the wages that were stipulated, the same 
wages, it may be assumed, which other laborers in 
the county were receiving. Why should the laborers 
now be unwilling to work for them at the same 
wages ? And if the laborers are willing to work at 
the same wages, why should the farmers pay more ? 

222. To Recapitulate.— Rent is the surplus of the 
crop above the cost of cultivation on the least iDro- 
ductive lands contributing to the supply of the 
market. Admitting the private ownership of land, 
that surplus, necessarily, so far as economic forces 
are concerned, is left in the hands of the landlord. 
There, so far as economic forces are concerned, it 
must remain. The landlord can give it away, if he 
pleases, just as he can give away his horse, or his 
house, or any thing that is his. He can give it to his 
tenant, just as he could give it to any one else. But 
if he does, it becomes a pure gratuity to the tenant, 
who, under the operation of the principle of self- 
interest, will transmit it neither to the agricultural 
laborer nor to the consumer of food, but will retain 
it entire for his own enrichment. 

22^. The Doctrine of Rent : How far Applicable to 
Actual Conditions?— Such is the economic doctrine 
of rent, which is known by the name of David 
R-icardo, its great expounder. We have said that 
this is true hypothetically, that is, upon the con- 
ditions assumed, viz., that the owners and the 
occupiers of land, each for himself, fully understand 
their own pecuniary interests, and will unflinchingly 
and unfailingly seek and find their best market. 



180 POLITICAL EGONOMT. 

How much does tMs mean ? A great deal ; more 
tlian ever was realized in any country of the world, 
at any time, though it has been far more nearly 
approached in some than in others. Jnst what is 
implied in the above assumption ? 

First, on the landlord's part, that he would as soon 
take a new tenant as retain one whose family had 
been on the soil for centuries ; that he will entertain 
DO other consideration than the realization of the 
largest possible rent ; and that he knows all the 
facts which in any way bear uxDon the highest rate 
which could be charged for the use of the land with- 
out driving away all would-be tenants. 

Secondly, on the tenant's part, that he would as 
soon move to another farm, to another county, or to 
another country, as stay where he is, should the 
least pecuniary advantage be offered by a change ; 
that he has, at all times, the means to remove him- 
self and his family and to place himself elsewhere ; 
that, were he to remove, he could carry with him 
the value of his stock and fixtures, and of any im- 
provements he might have made during his tenancy : 
that he thoroughly knows and can intelligently can- 
vass with himself all the varying advantages of a 
sufficient number of localities, whether in Europe, 
America, or Australia, to make his choice practically 
indefinite ; and that neither fear nor dread of change, 
nor love of home,, friends or country, will intervene 
to keep him from his best market : that is, where he 
can rent land, of a given degree of productiveness, 
at the lowest annual rate. 

In a word, the doctrine we are considering as- 
sumes that rents are determined solely by competi- 



ACTUAL BENTS. 181 

tion, and that competition is perfect witliin tliis 
sphere. 

The briefest recital of the foregoing conditions 
shoAvs clearly that the law of rent as laid down 
cannot furnish a formula by which the rent of a 
single piece of land on the globe can be deter- 
mined in advance. The law is true only hypothet- 
ically, and the conditions assumed exist nowhere. 

Yet this theoretical doctrine of rent is by no 
means to be regarded as vain and illusory. No pro- 
jectile describes a perfect parabola. Yet the artil- 
lerist never fails to have reference to the law of the 
projectile while pointing his piece. 

224. Rents in the United States. — In this country 
the economic doctrine of rent furnishes the principle 
which primarily determines actual rents. So com- 
pletely is the American mind imbued with the feel- 
ing that a thing is worth what it will bring ; so little 
sympathy is here found for the notion of classes 
which, by reason of weakness, must be hedged in 
from contact and competition with outside forces-; 
so vast are the tracts of arable land not yet occupied ; 
so freely do our people move from place to place ; so 
slight are their attachments to locality, that no prej- 
udice whatever would be created by a landlord's 
demanding the utmost rent which the tenant could, 
and in the result, would, pay. 

Here we see the unrestrained operation of the 
principle of competition, and with a wholly beneficial 
result. The tenant and landlord, being substantially 
on an equality as to intelligence, enterprise, and 
freedom of movement, seek each his own interest, 
yet without injury to the other. 



18^ POLITICAL ECONOMY. 

225. English Rents. — When, however, we reach the 
shores of England, we find a new force entering 
actively to influence rents, all on the side of the 
tenant's interest. Here the sentiment is universal 
that there are classes which, by reason of wealth, 
education and social position, are bound to do much, 
on the one hand, and to forbear much, on the other, 
out of regard to the interests of classes which are 
deemed to be, by reason of poverty and ignorance, 
permanently and hopelessly weak, and, in a greater 
or less degree, dependent. 

But it is in regard to land that this sentiment op- 
erates with the greatest force. It is imjjossible for 
an English landed proprietor to feel that freedom 
in regard to raising rents which characterizes the 
action of an American landowner. Were he, for the 
purpose of raising rents, to drive away tenants 
whose families had been on the soil for centuries, he 
would, instead of gaining increase of style and state 
through an enlargement of his rent-roll thus ob- 
tained, find his social standing destroyed thereby. 

With a condition of public sentiment thus acting 
strongly and steadily in restraint of the natural im- 
pulse of the land-holding class to advance rents, we 
should look to see a divergence of actual from theo- 
retical rents, all on the side of the tenant' s interest : 
and such, indeed, we find to be the case. "The 
rent of agricultural land," says Prof. Thorold Rog- 
ers, "is seldom the maximum annual value of the 
occupancy ; in many cases is considerably below ' 
such an amount." 

226. Customary Rents on the Continent of Europe.— 
On the Continent of Europe, rents are, in general, 



SENTIMENT AND BENTS. 183 

not determined by competition, but by custom, to 
which Mr. Mill has assigned the same beneficent 
function in economics it has always performed in 
the sphere of politics, as ^' the most powerful X3ro- 
tector of the weak against the strong." In Switzer- 
land, France and Italy, rents were formerly fixed 
almost universally by the custom of the country, at 
a certain definite portion of the produce of the land. 
So strong is the force of custom in protecting the 
tenant's interest, in these countries, that oftentimes 
it happens that, even where cities have sx)rung ujd 
during the continuance of a family upon the soil, 
giving a local market for produce, and, by conse- 
quence, raising prices, the landlord, even in admit- 
ting a new family to the estate, does not ^ttempt to 
exact a larger share of the produce. 

"A proprietor," says Sismondi, writing of Tus- 
cany, ^ ' would not dare to impose conditions unusual 
in the country, and, even in changing one metaj^er 
for another, he alters nothing of the terms of the 
engagement." 

227. Rents in Ireland Prior to 1844.— Having seen 
how far actual may be made to diverge from theo- 
retical rents, all on the side of the tenant's interest, 
by the force of a public sentiment restraining the 
greed of the landlord class and protecting a class 
deemed necessarily helpless and dependent against 
exaction and against eviction, let us now turn to a 
country where, in the time of which we are to speak, 
the population was not homogeneous ; where preju- 
dices of race and religion had engendered animosi- 
ties which descended from generation to generation; 
where no friendly public opinion stood guard over 



184 POLITICAL EGONOMY, 

tlie interests of a peasantry whose own improvidence 
and recklessness concurred with the unrestrained 
greed of the landlord class in inciting a fierce and 
unremitting competition for the occupancy of the soil. 
In the sifcuation described, with the aggressive 
tendencies of the landlord class stimulated to the 
highest degree, and uncontrolled by the kindly sen- 
timents or the conservative usages which in every 
other country in Europe during this period operated 
for the protection of the tenant's interest, and, on 
the other side, with the power of self-assertion in 
the Irish peasantry reduced almost to a minimum, 
it was a matter of course that rents were advanced 
to the full limit allowed by the economic law we 
have stated. Rents were demanded by the agent, 
or middleman, rents were even offered by the peas- 
antry in the eagerness of their competition, far in 
excess of the economic maximum ; in excess of what 
could possibly be paid ; in many cases in excess, in- 
credible as it may seem, of the whole annual prod- 
uce of the soil. 

228, Effects of Unequal Competition.— In the forego- 
ing description of the state of the Irish tenantry 
prior to 1844, we have an illustration of the results 
of an unequal competition. That same force which 
in the United States, operating upon an intelligent, 
alert, active, aggressive population, under equal 
laws and with a spirit pervading the whole society 
which promoted the utmost freedom of movement 
and of contract, produces effects only beneficial, in 
Ireland, under the melancholy conditions recited, 
produced only disaster. 

229. Actual vs. Theoretical Rents.— We see, then, 



BENT. 185 

that practically there may be three classes of cases 
in respect to rent. 

First — Where, nnder the influence of an active 
competition for the product of industry, with all the 
claimants substantially on an equality in respect to 
intelligence, alertness and freedom of movement, 
and with no laws or habits or sentiments opposing 
the complete exaction of all which any thing that is 
the subject of bargain and sale may be worth, rents, 
as in the United States, conform nearly to the Ri- 
cardian formula. 

Second — Where, among a population present- 
ing wide differences of wealth and intelligence, and 
perhaps, also, of rank and political power, senti- 
ments of personal kindliness and mutual regard be- 
tween landlord and tenant, and a strong, authorita- 
tive opinion throughout the community res]3ecting 
the obligations imposed by the ownershij) of prop- 
erty, especially of landed proj^erty, serve, as in 
England, and in many countries of the continent of 
Europe, to reduce, in greater or less degree, the 
pressure of the landowning upon the tenant class ; 
by which it comes about that rents vary widely from 
the Ricardian formula, always on the side of the 
tenantry. 

Third — Where, with a tenantry ignorant, degraded 
by long neglect or long abuse, improvident, perhaps 
reckless in respect to family increase, little in the 
way of personal sentiments on the part of landlords, 
and nothing in the way of public opinion, enters to 
restrain the impulses which tend to advance rents to 
the theoretical maximum, with a result of ultimate 



186 POLITICAL ECONOMt, 

injury to tlie economic interests of both parties and 
of the entire community. 

230. The Rent of Water Privileges.— We have thus 
far spoken only of the rent of arable land. We 
have taken this first, not only because it is most im- 
portant, so far as the mere amount involved is con- 
cerned, but also because the principles governing 
rent can be here most easily discerned. 

Water privileges have three uses : first, for power, 
in connection with saw-mills, grist-mills, cotton fac- 
tories, &c. ; secondly, for the supply of water, for 
drinking, washing, and other domestic purposes, to 
cities and towns ; thirdly, for the irrigation of land, 
for the purposes of agriculture. The volume of 
water, the convenience of its application to the pur- 
pose for which water is, in the specific instance, re- 
quired ; proximity to the market, that is, the place 
where the water is to be used, these are the princi- 
pal considerations which determine the productive- 
ness of a water-privilege for the purposes of rent. 
For the supply of cities and towns, the quality of 
the water also becomes an element of importance. 

Productiveness being thus estimated, there are all 
degrees among water privileges. There are the no- 
rent ]3rivileges, which, by reason of distance, or in- 
convenience of application, or of insufficient or ir- 
regular flow, are not used at all, or are only used on 
condition that no compensation is exacted therefor. 
Above these, are found low-rent privileges and high- 
rent privileges, the measure of rent being the degree 
of productiveness. 

231. Building Lots.— The rent of building lots is de- 
termined by the principles we have already set forth. 



BEJ^T. 187 

The productiveness of land occnpied for the pur- 
poses of manufacture or trade, has reference to the 
amount of business which the locality affords an op- 
portunity to secure, or to the proximity of water- 
privileges, or of wharf -privileges, or to other facili- 
ties for either doing a greater amount of business 
with the same capital, or for saving expenditure 
upon a given amount of business. Such lots being 
limited in number, yet held by competing owners, 
their rent conforms closely to the Ricardian formula, 
under this varying construction of the word, pro- 
ductiveness. 

In regard to the rent of building lots, competition 
is, if not perfect, at least very active on both sides. 
IN'o favor is shown or asked ; the two parties to the 
bargain are regarded as equal. The landlord gets 
all the land will bring, if not from one tenant, then 
from another. The tenant expects to j)ay all that 
any man will be willing to give for the commercial 
advantages of occupying the ground. 

232. The Rent of Mines.— The rent of mines is not 
governed wholly by the economic law of rent which, 
as stated (pars. 209, 212) has reference to the native 
and indestructible powers of the soil. Under proper 
care and husbandry, cultivation need not exhaust 
the soil. The enjoyment of water privileges does 
not exhaust the capacity of the river, which flows 
on forever. The occupation of the ground by a 
building for a generation does not contract the sur- 
face available for the same or a different use by 
another generation. But, by the very nature of such 
deposits, the enjoyment of mining privileges dimin- 
ishes the suni of the mineral in existence. The mine 



188 POLITICAL ECONOMY. 

may be '^ worked-out " in ten years or in twenty or 
in fifty, and nothing but an ngly jjit be returned to 
the owner, at the exj)iry of the lease. The rent of 
such properties is not, therefore, regulated by the 
Ricardian formula, without modification. The rent 
must be increased sufficiently to compensate for the 
ultimate exhaustion of the deposits : the destruc- 
tion of the value of the estate. Otherwise, the rule 
of rent for these properties is the same as in the 
case of other natural agents. The chief elements, 
here, in determining proliuctiveness, for the purpo- 
ses of rent, are the quality of the product, the ex- 
tent of the deposits, the depth of working, the 
distance from a market. 

233. The Kent of Buildings and of Permanent Improve- 
ments on the Land.— The so-called rent of buildings, 
exclusive of ground rent, is not governed at all by the 
economic law of rent, but by the principles which 
regulate the interest on capital, of which we are next 
to speak. A man owns a building lot^ for which he 
could obtain a ground-rent, that is, rent proper. 
Being also a caxoitalist, he erects a building thereon. 
Why does he so ? Because he believes that, in ad- 
dition to the rent of the ground, he can also obtain 
for the occupation of the house erected thereon, a 
fair remuneration for the use of his capital, a re- 
muneration equal (damage, trouble and risk of loss 
being taken into account) to what he would receive, 
were he to put his capital into the form of live stock 
or railroad shares, or government bonds. 

The building is an investment of capital. If his 
investment has been shrewdly made, he will receive 
from his tenants a sum whichj in the view of the 



BENT. 189 

economist, consists of two parts, rent, proper — 
ground rent — and interest. We shall see, in the 
next chapter, that these two elements of the re- 
muneration paid for the use of the house, are gov- 
erned by widely different laws. 

234. The Unearned Increment of Land.— We have 
seen how rent arises, under the private ow^nership of 
land, and what principles govern its amount and 
economic direction. 

Upon this view of rent has arisen the question, 
AVhy should the private ownership of land be per- 
mitted to exist ? at any rate, why should this inci- 
dent of i)rivate ownership), the aggrandizement of the 
owner through the growth of the community, to 
which he may have not in the least contributed, be 
longer permitted to exist? Why should not this 
''unearned increment of land," to use Mr. Mill's 
phrase, go to the community, and not to any individ- 
ual? 

This demand has been made very vigorously, of 
late years, by a school of writers which embraces 
more than one economist of rex3utation. As the 
elements of the question are not purely economic, 
but embrace considerations of political equity and 
political expediency, I shall reserve all remark con- 
cerning it till we reach Part YI. 



CHAPTER IIL 
Interest. 

235. Definition of Interest. — We have seen one 
share cut off from the product of industry — rent ; 
one claimant satisfied — the landlord. The reader 
doubtless now sees why this topic was first treated. 
In economic theory, this is the first claim to be 
adjusted and paid. 

We are now to speak of Interect : the share of the 
capitalist in the product of industry. 

In Part II. , we inquired into the origin and office 
of capital. We saw that capital consists of savings 
out of earnings, the native powers of the earth, air 
and water not being regarded as capital. W^ealth 
having been produced, some of it, much of it, must 
soon be consumed, in order to sustain the producing 
classes, and to repair the waste inevitably attendant 
upon production, and even upon the mere lapse of 
time. All of it may be so consumed, and will be, 
under the urgent and constantly-recurring desires 
which wealth alone can satisfy, unless some motive 
for saving can be found which shall prove strong 
enough to withstand the impulses to immediate 
gratification, and to wrest a portion of wealth from 
the jaws of appetite. We have shown what that 
motive is, and how it manifests itself in a savage or 
barbarous condition of life. To the varying strength 
of that motive with different men, and different 
races, we shall have occasion to refer further on, 



THE BATB OF INTEREST. 191 

236. Interest not Paid for the Use of Money.— It has 
been said that interest is the compensation i3aid for 
the nse of cai3ital. The nsual form of statement is 
that interest is paid for the use of money. Broadly 
speaking, this is not true. Money, which is one 
of the many forms of capital, is, indeed, often used 
as the agent for effecting the loan of other species 
of capital. But in these cases, it is not the money, 
philosophically considered, that is borrowed : The 
interest j)aid is for the use of the capital obtained 
through that agency. 

237. The Rate of Interest.— Let us now inquire how 
the rate of interest is determined. 

Since the use of capital is a matter of bargain and 
sale, or of exchange, what should determine the 
rate of interest but the demand for, and the supply 
of, loanable capital ? 

Here we see the futility of the notion, which, 
from time to time, obtains a strong hold on the pub- 
lic mind of America, and, indeed, of all new coun- 
tries, that the rate of interest is to be lowered by 
increasing the supj)ly of money through the issue of 
paper notes. The issue of money will not increase 
the number of horses and cattle and plows, nor will 
it build slioi)s a.nd warehouses, or construct ma- 
chinery for manufacture or for transport. 

If the people of a community be thriving and pro- 
gressive, the demand for capital, to start new enter- 
prises or to enlarge those already established, will 
be very great. If the community be also young, 
having brought to new fields the social and indus- 
trial ideas, tastes and ambitions of an old society, 
with but little of its accumulated means, the supply 



192 POLITICAL ECONOMY, 

of capital will be scanty, and the rate of interest will 
rule high. 

Is this high rate of interest a hardship ? No, the 
hardship lies in the scarcity of capital. The high 
rate of interest becomes the active means of remov- 
ing that hardship, through increasing the supply 
of capital available to meet the demand. How is 
this ? 

Capital is, as we have seen, the result of saving. 
Interest, then, is the reward of abstinence. The 
strength of the motive to accumulation will, in gen- 
eral, vary with the reward of abstinence. If this be 
high, the disposition to save will be strengthened, 
and cax3ital will be rapidly accumulated ; if this be 
low, that disposition will be relatively weak, and 
capital will increase slowly. 

238. The Hate of Interest tends to a Decline.— Despite 
the urgent and ever-recurring demands for the con- 
sumption of wealth in various forms of self-indul- 
gence ; despite the occasional reversal of the course 
of accumulation, in the occurrence of w^ar f despite 
all the effects of misgovernment and social disorder, 
wealth tends strongly to increase. Since the appli- 
cation of steam power to manufactures and trans- 
portation, this rate of increase has been so great 
as even to transcend the demand for the uses of 
wealth in undertaking new industrial and commer- 
cial enterprises, and thus, with some temporary ex- 
ceptions, interest has tended to decline with the prog- 
ress of years. 

In this respect interest differs markedly, we may 
say, essentially, from rent. The latter tends to rise, 
with the lapse of time, the increase of pojDulation, 



INTEREST AND RENT. 193 

the growth of wealth. The former tends generally 
to decline under the same conditions. This consti- 
tutes one of the two reasons why the economist in- 
sists upon treating interest and rent separately in 
his discussion of the distribution of the product of 
industry. The second of these reasons will now be 
stated. 

239. There is no No-Interest Capital We have 

seen that the whole theory of rent rests on the 
assumption that there is a body of no-rent lands. . 
These serve as the base from which to measure up- 
wards the successive degrees of i3roductiveness of 
the lands bearing rent. 

There is nothing to correspond to this in the theory 
of capital. The economisi does not find any no- 
interest cax^ital. In theory, all capital bears an in- 
terest, and all x)ortions of capital bear equal interest. 
If one portion of capital, in fact, brings no interest 
to its owner, or brings an interest below that obtained 
by the owners of other x^ortions, this is because of 
accident or erroneous calculation. 

Of course, it is anticijDated by the political econo- 
mist that the interest realized by portions of capital 
actually loaned will vary not a little, even Avithin the 
same market, inasmuch as competition is never per- 
fect in any sj^here ; but what has been stated shows 
how fundamentally the theory of interest diflters 
from that of rent. 

240. Is there a Minimum rate of Interest ? — We have 
said that the inducement to save diminishes, other 
things equal, as the rate of interest falls. Is there a 
point at wdiich the disposition to consume wealth 
for purposes of comfort or luxury will equal in 



194: POLITICAL ECONOMY. 

strength the disposition to acquire an annual income 
by saving it for productive uses ? 

If there is a minimum rate of interest, it is very 
low. Fifteen or twenty years ago, six per cent, was 
the traditional rate of interest in New England, and 
probably few of us then thought that, if the rate 
were to go lower, it really would be w^ortli while to 
" save." Yet since that time we have seen the rate 
of interest steadily fall, in consequence of the vast 
accumulation of capital, till now loans of capital are 
to be had on good security at four and one-half or 
even four 23er cent., while the government borrows all 
it wants at three and one-half or even three. The 
English government has long borrowed at three per 
cent. Holland, during the most flourishing period 
of the Rex3ublic, was even able to borrow at two per 
cent. 

241. False Interest: Insurance of the Principal. — A 
great deal that is paid under the name of interest 
is not interest in the true sense, but is merely a pre- 
mium for the insurance of the principal sum lent. 
Absolute assurance can be reached in no human 
transaction ; but where the risk is so small that it 
amounts to nothing in the mind of the lender, as in 
the case of British consols, or of a "bottom mort- 
gage," where the sum lent is only a half, say, or a 
third, of the value of improved real estate, there 
we have an instance of real interest, x)ure and simple. 

Whatever, in the same market, at the same time, 
is paid above this, for the use of capital, is of the 
nature of insurance against the risk of losing the 
amount lent. If the rate of real interest in London 
is 3 per cent., as determined by the price of consols, 



BISKS OF CAPITAL. 195 

loans on various kinds of fair security may range 
from that rate up to 5 or 6 per cent. ; while all the 
time note- brokers are "shaving" the "paper" of 
second and third rate dealers at from 10 to 20 per 
cent, discount. 

242. Extra-Hazardous Risks — The operation of tlie 
mind of the |)erson who lends capital, at a high 
interest, upon poor security, is a familiar one. He 
sees the opportunity to obtain interest projjer — the 
normal remuneration for forbearing to consume in 
immediate self-indulgence the wealth he has created, 
or come into possession of — without encountering 
any appreciable risk of losing the principal sum. 
But there is offered him a higher, perhaps a much 
higher, rate of interest, for a loan into which a 
chance of total loss enters. His mind balances the 
risk against the prize. 

Of the degree of risk there is no measure. The 
ablest statistician, the first financier of the world, 
could give no mathematical statement of the chances 
for or against the ultimate repayment of the loan. 
The matter lies very vaguely even in the mind of the 
shrewdest banker or broker. He merely sees that 
there is great risk or little risk, very great risk or 
very little risk, or that the elements on which the 
ability of the borrower is to depend are altogether 
shrouded in uncertainty. 

With the great majority of persons no calculation 
whatever, deserving of the name, enters into the 
negotiation of loans where more than double interest 
is paid. They are simply tempted beyond what 
they are able to bear. Few, indeed, would be 
capable of making any computation of the value of 



196 POLITICAL ECONOMY. 

tlie risks they take ; few even go throngk tlie form of 
doing so for the satisfaction of their own minds. 
The only thing that can be said with assurance is 
that the vast majority of lenders on extra-hazardous 
risks are losers. The high rate of interest proves 
simply a snare. Tempted by the offer of 12 or 20 
per cent., they take risks for which 40 or 50 would be 
inadequate. Interest is paid, dividends are declared, 
just long enough to complete the subscription, just 
long enough to secure the last gudgeon in the pool. 

243. The Wreckers of Trade. — The foregoing re^ 
marks apply to the great majority of investors who 
take extra-hazardous risks. Yet there are in every 
large commercial community those who reap enor- 
mous rates of interest with only rare losses to offset 
their gains. These are men with preternatural sa- 
gacity to know when it is safe to trust a rogue, how 
far to ride with a spendthrift towards his ruin, just 
the point at which to leave a tottering house whose 
foundations they have undermined by drains of ex- 
orbitant interest, just the moment at which to " un- 
load" a stock; men with the cunning to secure 
themselves against loss, whoever else may suffer ; 
men who have the hardness to exact the last penny 
of their dues, at whatever distress to the debtor. 
Such men are the wreckers of trade. Their gains 
are great, for they reap the enormous profits of 
extra-hazardous risks, yet seldom lose in the prin- 
ciiDal sum lent. 

244. Double Interest.— The foregoing remarks apply 
only to extra-hazardous risks, where, to put it 
roundly, more than double interest is paid. With 
investments or temporary loans inside this limit, a 



mFFERING BATES OF INTEREST. 197 

different rule obtains. Tlie rates of interest paid are 
still graded with very little real appreciation of the 
degrees of risk taken ; yet it is generally possible 
for an investor or lender to say, this is more safe 
than that : the adverse chances here are few and 
small ; are many and great there. 

But the most marked difference between extra- 
hazardous and ordinary risks in the loan of capital 
is that, while, with the former, the rates obtained 
are, as a whole, taking all classes of investors or 
lenders together, far below the actuarial value of the 
risks taken, with ordinary risks the rates of inter- 
est are, on an average, above their true value, as es- 
timated with reference to the danger of the loss of 
the principal sum. 

This results from the fact that the natural conserv- 
atism of large bodies of property owners, and the 
very strict laws regulating the accountability of 
trustees, fix a rate of interest for loans and invest- 
ments deemed absolutely safe, which is below their 
prox)ortional value, so that any large lender placing 
his risks judiciously and spreading them somewhat 
widely, is certain to realize a larger return from his 
capital through a term of years, after deducting 
losses, than if he had invested in the most approved 
securities. 

245. Differing Bates of Interest in the Same Market. — 
We have laid down the proposition (par. 96) that in 
one market, at one time, there can be but one price 
for equal portions of the same commodity. The 
plain facts of interest seem to controvert this propo- 
sition. In the same market, at the same moment, 
the price paid for the use of capital may range 



198 POLITICAL ECONOMY. 

from three per cent, upwards, to five, to ten, to 
twenty. 

Is this because between the portions of capital so 
loaned an economic difference exists, which creates 
a preference for one over the other, as when several 
different grades of flour are sold at several distinct 
prices % No, the capital loaned may be, in all eco- 
nomic respects, uniform. A man having $30,000 on 
deposit in a bank, may, on the same day, buy $10,- 
000 worth of '' governments " which pay 3 per cent., 
and give Ms check on the bank for one-third of his 
deposit; buy *' railways" paying 6 per cent, divi- 
dends, to the same amount, giving his check for 
another third part of his deposit ; and loan the re- 
mainder at 10 per cent, on personal security. Mani- 
festly, between the three portions of capital loaned 
or invested, no economic differences existed. 

To what, then, is the phenomenon noted, due ? In 
part to the cause discussed under the last head — the 
insurance of the principal sum lent. Twenty years 
ago there were on the stock market, in Lombard 
street, three kinds of government securities : En- 
glish consols, bringing, then, 3J per cent, interest on 
the investment ; Russian bonds bringing SJ per cent., 
and Turkish bonds bringing lOj per cent. Every 
day large amounts of these bonds were bought by 
Englishmen. Doubtless, some purchasers bought 
portions of each kind of securities. Inasmuch as 
the possibility of the English government becoming 
bankrupt, or tending to repudiation, is never admit- 
ted by an Englishman, the dividends received from 
the "consols" consti utedpure interest, the reward 
of abstinence, the sufficient inducement to abstain 



DIFFERING RATES OF INTEREST, 199 

from tlie immediate enjoyment of wealtli. Of the 
lOi per cent, interest obtained on the Turkish loan, 
7J was the price of the insurance of the principal, 
according to the degree of risk involved, as viewed 
by the purchaser. 

246. Imperfect Competition in the Money Market.— 
We liave, in the foregoing paragraph, used tlie 
exxjression, " as viewed by the purcliaser." Hereby 
is indicated a consideration, which, while it is of im- 
portance in any market, is of esx)ecial importance in 
that in which capital is loaned. This can rarely be 
called a good market, even in the most limited and 
partial sense. All bargains in the '' money market," 
as it is popularly called, take place necessarily ux3on 
information imperfect at the best, often of a private 
and confidential nature ; so that it frequently hap- 
pens that, in the same market, at the same moment, 
loans, upon equally good security, are made at very 
different rates. 

247. Differing Bates of Interest in Different Markets.— 
Of course, all that has been said of differing rates 
of interest in the same market holds good of differ- 
ent markets ; but, wholly in addition to the causes 
which produce these differences, is reason found for 
differing rates in distinct markets. Thus it is notori- 
ous that, for long terms of years, the loan of capi- 
tal could be obtained, upon what was locally re- 
garded as approved security, for 4 x^er cent, in Lon- 
don as freely as for 6 per cent, in JSTew York, or 8 
per cent, in Chicago, or 12 per cent, in Iowa, or 
Kansas. 

Whence these differences ? In some degree, 
doubtless, these successive additions of interest 



200 POLITICAL ECONOMY. 

were of tlie nature of insurance on the principal 
sum lent. In each case, the security might be as 
good as could ordinarily be obtained in that com- 
munity ; but security is a relative term. The older 
the country the greater the permanence of economic 
relations ; the more does industry settle down within 
traditional limits ; the higher the value assigned to 
commercial reputation, the fewer are the chances of 
revolutionary changes in business. 

248. Disinclination of Capital to Emigrate.— But not 
all, or even the greater part of the differences which 
have been noted, are due to this cause. 

I remember to have read somewhere an estimate 
by an economist of reputation, fixing the "disin- 
clination of capital to emigrate" at two j^er cent. 
It is doubtful, however, whether the matter is fairly 
subject to any such form of statement. The 'disin- 
clination to invest capital abroad must diifer among 
men of different races ; it must differ with differing 
conditions respecting the communication of news, 
and respecting international relations. Indeed, it 
must differ widely with differing moods of the public 
mind. At times, it may disappear altogether under 
the excitement of speculative mania, as in the days 
of the South Sea Bubble, and in the year preceding 
the English crisis of 1825. It sometimes seems even 
to be the case that loans and investments are made 
abroad more freely than at home, probably because 
it is less easy to detect the fallacy of schemes bear- 
ing foreign names, and relating to distant lands. 



CHAPTER lY. 

Profits. 

249. Definition of Profits.— We liave seen two shares 
cut off tlie product of industry — rent, and interest ; 
two claimants satisfied, the landlord and the capi- 
talist. 

We now come to inquire respecting the share of 
the emj)loyer, who organizes and conducts produc- 
tion, deciding what shall be produced, in what 
amounts, of what varieties, materials and patterns, 
and to what persons, at what prices, and on what 
terms of payment, the products shall be sold. 

250. The Entrepreneur Class.— We have seen that in 
a primitive state of industrial society the employer 
does not api^ear. When, however, the forms of 
production become many and complex, when the 
hand- tool is replaced by the machine ; when many 
persons of various degrees of skill, strength and in- 
telligence are united in the same industrial opera- 
tion ; when the materials consumed are gathered 
from distant lands, and the products, in turn, are 
distributed widely to consumers not known to the 
i^/roducer, and are sold largely upon credit ; when, 
'moreover, a few simjjle, standard styles give way to 
ever varying fashions, in material, in form, in color, 
in such a state of production the employer, the mas- 
ter, the entrejjreneur, becomes a necessity of the 
situation. He performs a function which is indis- 



202 POLITICAL ECONOMY. 

pensable to a large and varied production of wealth, 
and for doing so receives a remuneration out of the 
product of industry, which we call profits. 

251. Ifeglect of the Entrepreneur Function, by English 
and American Economists.— Unfortunately, as it seems 
to me, the entrepreneur function has not been ade- 
quately treated, if, indeed it has been in the smallest 
degree recognized. English and American econo- 
mists, in general, have chosen to regard the capital- 
ist as the employer of labor, that is, as employing 
labor merely because of the possession of capital, 
and to the extent only to which he possesses capital. 
In the later stages of industrial development, the 
mere possession of capital no longer constitutes the 
sole, or even the main qualification for employing 
labor and, on the other hand, the laborer no longer 
looks to the employer to furnish merely food and 
tools and materials, but to furnish, also, technical 
skill, commercial knowledge and powers of adminis- 
tration ; to assume responsibilities and provide 
against contingencies ; to shape and direct produc- 
tion and to organize and control the industrial ma- 
chinery. So important and difficult are these duties 
of the entrepreneur, so rare are the abilities they 
demand for their satisfactory and successful per- 
formance, that he who can discharge these will gen- 
erally find the capital required. If he be* the man 
to conduct business,'^ food, "tools, and materials will 
not, under our modern system of credit, long be 
wanting to him. On the other hand, without these 

^ " Many employers of labor, in some parts of England more than 
half, have risen from llie ranks of labor. Every artisan who has ex- 
ceptional natural abilities, has a chance of raising himself to a post 
of command." — Marshall's " Economics of Industry." 



PROFITS. 203 

higher qualifications, the mere possessor of cai)ital 
will employ labor at the risk, almost the certainty, 
of total or partial loss. The employer, the entre- 
preneur, thus rises to be the master of the situation. 
It is no longer true that a man becomes the employer 
of labor, because he is a caj)italist. Men command 
capital because they have the qualifications to em- 
]Dloy labor. To men so endowed, capital and labor 
alike resort, for the opportunity to perform their 
several functions and to entitle themselves to shares 
of the product of industry. 

252.— Use of the word Profits by English and Ameri- 
can Economists.— As the English and American econo- 
mists generally leave the I entrepreneur ) out of their 
discussion of i^roduction, so they leave out of view 
the share of the entrepreneur when treating of the 
distribution of wealth. ' ' Profits ' ' come to mean only 
the remuneration for the use of capital, what we 
call distinctively interest ; or, if it be recognized 
that the man who organizes and conducts industrial 
operations receives something over and above the 
mere return upon that portion of the capital em- 
ployed by him which he holds in his own right, that 
something is disparaged by being termed" the wages 
of supervision and management." 

253. A Different View.— Now it is fundamental in 
my theory of distribution, as to which I am gener- 
ally in accord with the French economists, that the 
entrepreneur class, the employers of labor, receive 
a share of the product of industry which is at once 
so important, through its amount, that it cannot 
possibly be omitted from consideration, and so 
widely different in the principles by which it is 



204 POLITICAL ECONOMY. 

governed, that tlie term wages cannot be applied 
thereto without inducing a wholly unnecessary and 
mischievous confusion of ideas, leading directly to 
false results. 

To the entrepreneur's share of the product of in- 
dustry I shall strictly apply the term profits. This 
use of the term x^rofits, in my judgment, tends to 
promote clearer conceptions regarding the distribu- 
tion t)f wealth, in the modern industrial state. 

254. Profits a Species of the same Genus as Rent. — 
In my opinion, profits thus defined bear a very strong 
resemblance to rent. In this view I follow Arch- 
bishop Whately, who, in the appendix to his treatise 
on Logic, declares that the rent of land is only a 
species of an extensive genus, although, as he com- 
plains, the English economists have treated it as 
constituting a genus by itself, and have either 
omitted its cognate species, or have included them 
under genera to which they do not properly belong. 
If this view is correct, the principles deduced there- 
from will be of very great consequence, not only to 
political economy, but to social philosophy. Let us, 
therefore, state again the essential differences be- 
tween Rent and Interest. 

1st. A portion of the land cultivated for the 
supply of any given market, bears no rent ; this we 
call the no-rent land. The rent paid for any piece 
of land is exactly measured, in theory, by its excess 
of advantages in production over the advantages in 
production pertaining to the no-rent land. On the 
other hand, there is not any no-interest capital. It 
is true that a person lending capital may not only 
not obtain, in the result, any interest for its use, but 



PROFITS. 2.05 

may even lose the j)rincipal ; but this will be due to 
violence or fraud, to flood or fire or stress of weather, 
or, else, to the incompetency of the borrower to con- 
duct business, all of which we may sum up in the 
word accident. There is no reason why such acci- 
dents should befall one portion of capital and not 
another, whereas there is a reason, in the nature of 
the case, why one piece of land should bear a rent 
and another not ; why one piece should bear a high 
and another a low rent. 

2d. It follows from the above, that interest forms 
a part of the price of all products, whether the 
capital concerned be erajDloyed to assist the opera- 
tions of the agriculturist, the manufacturer, the 
transportation company, the merchant or the banker; 
but rent forms no part of the i^rice of agricultural 
produce. 

255. Profits Governed by tlie same^ Law as Rent.— 
Having restated the essential distinction between 
interest and rent, I shall now undertake to show that 
profits, the remuneration of the entrepreneur, par- 
take very largely of the nature of rent, being a 
species of the same genus ; and that, so far as this is 
the case, profits do not form a part of the price of 
the products of industry, and do not cause any 
diminution of the wages of labor. 

The successful conduct of business und^r free and 
active competition, is due to exceptional abilities or 
to exceptional opjDort unities. Whether due to ex- 
ceptional abilities or to exceptional opportunities, 
my proposition would be equally well established, 
Just as it makes no difference in the theory of 
rent whether a piece. of land owes itg superior ad- 



306 POLITICAL ECONOMY. 

vantages for the purposes of cultivation to higher 
natural fertility, or to closer proximity to the market 
to be supplied. 

Yet it cannot be a matter of indifference to social 
philosophy whether the power to command profits 
be due to exceptional abilities or to exceptional op- 
portunities ; and we may, therefore, be pardoned for 
pausing to point out that the former are far more 
efficient than the latter, in securing profits. To 
justify this assertion it will be enough to refer to the 
notorious fact that a great majority of all business 
houses which have achieved notable success have 
been founded by men who owed almost nothing to 
opjjortunity ; perhaps by men who struggled uj^ to 
the high place they occupied in the industrial order 
against poverty or actual misfortune ; while, on the 
other hand, nothing is more familiar than the 
spectacle of great houses, deeply founded, which 
have enjoyed great prestige, wide connections and 
large capital, dwindling away little by little, if not 
brought abruptly to their downfall, under the suc- 
cessors of the original founder, simply because the 
management which had been strong and brave and 
wise, became commonplace^ purposeless, timid and 
w^eak. 

All this is so familiar that I do not fear that any 
American, at least, will question the assertion that 
exceptional abilities have far more to do with the 
successful conduct of business than exceptional 
opportunities. Hereafter I shall for convenience and 
simplicity, speak of profits as due to exceptional 
abilities, jast as in discussing the question of the 
use of land, we speak of rent as due to differences in 



PROFITS. 307 

fertility, assuming that all the fields under view are 
equally near the market. 

256. A Theoretical No-Profits Stage of Production. — 
Now, let us supx)ose that (1) the number of men of 
exceptional abilities were more than sufficient to do 
all the business that required to be done, of all sorts 
and in all places ; (2) that these men were among 
themselves equal in all respects which concern the 
conduct of business ; and j^3) that this class, so con- 
stituted and so endowed, were distinguished from all 
not of their class so clearly and conspicuously that 
no one having these exceptional abilities should ever 
fail to be recognized, and no one lacking such abilities 
in the full measure should esteem himself capable 
of conducting business, or be so esteemed, for the 
purpose of obtaining credit, by those who have 
cajntal to lend or goods to sell. Should we not 
then have a situation closely analogous to that which 
we described in the case of a community near which 
was found an amount of good land, of uniform 
quality, more than adequate to raise all the produce 
required ? Either this class would, by forming a 
combination and scrupulously adhering to its terms 
and its spirit, create and maintain a monopoly price 
for their services in conducting the business requir- 
ing to be done, which is altogether improbable, or, 
else, they would, by competing among themselves 
for the amount of business, bring down its rate to so 
low a point that the remuneration of no one of this 
class would exceed what he could earn for himself 
in other avocations. 

This, which we might call the ''no-profits " stage 
of industrial society, corresponds closely to the 



208 POLITICAL ECONOMY, 

"no-rent " stage in the cnltivation of tlie soil. The 
persons remaining in the conduct of business would, 
indeed, earn their subsistence, but no more, and 
economically it would make no difference to them 
whether they did this as employers or as employed. 
257. In fact, however, the qualifications for the 
conduct of business are not equal throughout all of 
a sufficiently numerous class ; on the contrary, the 
range of ability is almost world-wide. 

First, we have those rarely-gifted persons who, in 
common phrase, seem to turn every thing they touch 
into gold ; whose commercial dealings have the air 
of magic ; who have such power of insight as almost 
. to seem to have the power of foresight ; who are so 
resolute and firm in temper that apprehensions 
and alarms and repeated shocks of disaster never 
cause them to relax their hold or change their 
course ; who have such command over men that all 
with whom they have to do acquire vigor from the 
contact. 

Next below we have that much larger class of men 
of business, of a high order of talent, whose unquali- 
fied success is easily comprehended, even if it can- 
not be imitated, by their less gifted competitors : 
men of natural mastery, sagacious, prompt and re- 
solute in their avocations. 

Then we have the men who, on the whole, do well, 
or pretty well, in business ; men who enjoy a har- 
monious imion of all the qualities of the entrepre- 
neur, though only in moderate degree, or in whom 
some defect, mental or moral, impairs a higher 
order of abilities ; men who are never masters of 
their fortunes, are never beyond the imminence of 



THE NO-PROFITS CLASS OF ENTREPRENEURS. 209 

disaster, and yet, by care and pains and diligence, 
win no small profits from their bnsiness, and, if frn- 
gality be added to their other virtues, accumulate in 
time large estates. 

Lower down in the industrial order are a multi- 
tude of men who are found in the control of business 
enterprises, for no very good reason that can be seen 
by those who know them; men of checkered for- 
tunes, sometimes doing well, but more often ill ; 
men who are in business because they have forced 
themselves into it under a mistaken idea of their own 
abilities, perhaps encouraged by the partiality of 
friends who have been willing to place in their hands 
the agencies of production, or intrust them with 
commercial or banking capital. The industrial 
careers of these men are not peculiarly happy, 
though the degree in which they suffer from the 
constant imminence of loss, perhaps of bankruptcy, 
is very much a matter of temperament. 

258. The No-Profits Class of Entrepreneurs.— Now 
in my view of the question of profits, we find, in 
the lower stratum of the industrial order thus 
sketched, a "no-j)rofits" class of entrepreneurs. 
Notwithstanding all the magnificent i^remiums of 
business success, the men of real business power are 
not so many bat that no small part of the posts of 
industry and trade are filled by men inadequately 
qualified, and who, consequently, have a very 
checkered career and realize for themselves, takins: 
their whole lives together, a very meager comi3ensa- 
tion. 

Live they do, partly by legitimate toll upon the 
business that passes through their hands, partly at 



310 - POLITICAL ECONOMY, 

the cost of tlieir creditors with whom they make 
frequent compositions, partly at the expense of their 
friends, or at the sacrifice of inherited means. This 
bare subsistence, obtained through so much of hard 
work, of anxiety, and often of humiliation, we re- 
gard as that minimum which, in economics, we can 
treat as Qiil. From this low point upwards we meas- 
ure profits. 

259. Profits do not form a part of the Price of Manufac- 
tured Products. — If this view of the emx^loying class 
be correctly taken, and who will say that it does not 
fairly represent the facts of modern industrial so- 
ciety ? ib is seen at once that, under perfect compe- 
tition, that is, if all the conditions of a good market 
be supplied, manufacturing profits, for instance, are 
not obtained through any deduction from the wages 
of mechanical labor, any more than rent is obtained 
through any deduction from the wages of agricul- 
tural labor; and that, secondly, manufacturing prof- 
its do not constitute a part of the price of manufac- 
tured goods, any more than rent constitutes a part 
of the price of agricultural produce. All X3rofits are 
drawn from a body of wealth which is created by 
the exceptional abilities (or opportunities) of those 
employers who receive profits, just as all rents are 
drawn from a body of wealth, which is created by the 
exceptional fertility (or facilities for transportation 
of produce) of the rent-lands. 

The normal price of manufactured goods of any 
particular description is determined by the cost of 
production of that portion of the supply which is 
produced at the greatest disadvantage (par. 99). If 
the demand for such goods is so great as to req^uire 



PROFITS AND PEIom 211 

a certain amount to be produced under tlie manage- 
ment and control of persons wliose efficiency in or- 
ganizing and supervising the forces of labor and 
capital is small, the cost of production of that por- 
tion of the stock will be large, and the x^rice will be 
correspondingly high ; yet, high as it is, it will not 
be high enough to yield to the entrepreneurs of 
this grade any more than that scant and difficult 
subsistence which we have taken as the no -profits 
line. 

The price at which these goods are to be sold, how- 
ever, will determine the jDrice of the whole supjDly, 
since, in any given market, at any time, there is 
but one price for different equal portions of the 
same commodity. Hence, whatever the cost of 
those portions of the su^jply which are i^ro- 
duced by entrepreneurs of a higher industrial grade, 
they will command the same price as those portions 
which are produced at the greatest disadvantage. 
The difference, so measured, will go as profits to 
each individual entrepreneur, according to his own 
success in production. 

260. Profits are not Subtracted from Wages Do 

profits, then, come out of wages ? ISTot at all. The 
entrepreneurs of the lowest industrial grade — the 
no-profits employers, as we have called them — • 
must i)ay wages sufficient to hire laborers to work 
under their direction. 

The entrepreneurs of the higher industrial grades, 
paying wages at the same rates, and selling their 
goods, so far as they are of equal quality, at the 
same price as the entrei)reneurs who make no profits, 
are yet able by their careful study of the sources of 



212 POLITIGAL EGONOMT. 

their materials ; by their comprehension of the 
demands of the market ; by their organizing force 
and administrative ability ; by their energy, econo- 
my, and prudence, to accumulate a clear surplus, 
after all obligations are discharged, which surplus is 
called profits. 

261. The No-profits Entrepreneur.— A failure to 
discern the true relations of iDroiits to wages has led 
to a very mistaken apprehension of the interests of 
the community, and especially of the laboring 
classes, regarding the employers of labor. While 
the large profits of the successful entrepreneur have 
been the subject of much jealousy, and almost uni- 
formly excite in the minds of the unthinking the 
sense of personal wrong, there is an entire lack of 
jealousy exhibited towards the unsuccessful man of 
business, who often receives a great deal of sympathy 
from the laboring class. Many writers even deplore, 
on economic grounds, the modern tendency to the 
concentration of productive industry in a compara- 
tively few hands. 

So far as the symjDathy extended towards the un- 
successful man of business flows from a kindly dis- 
j)osition towards the unfortunate, it is, of course, 
very amiable. But there is a reason to believe that 
this sentiment is, in the main, produced by a misap- 
prehension of economic relations. The laborers 
appreciate, in some degree, the cares under which 
the unsuccessful employer labors, the anxieties from 
which he suffers, the humiliation into which he is 
occasionally plunged. They know he has a 
pretty poor time of it on the whole, and they are 
not envious of him ; on the contrary, they use his 



INCOMPETENT EMPLOYERS. 213 

hard lot to sliarpen tlieir envy of tlie man who reaps 
large profits from the conduct of business and the 
emj)loyment of Jabor. 

If, however, we have rightly indicated the source 
of profits, not only is the unsuccessful entrepreneur 
deserving of no special economic sympathy on the 
I)art of the laboring class, but his conduct of busi- 
ness, his control of labor-force and capital-force is 
at a great cost to the laboring class, as forming a 
part of the general community. 

We saw that rents were measured upward from the 
productive level of the no-rent land. If, therefore, 
that level is lowered, rents are, by that fact, raised. 
Similarly, profits are measured upwards from the 
level of the no-profits class of employers ; and any 
cause which brings incomx)etent persons into the 
conduct of business, or keei3S them there against 
the natural tendency of trade to throw them out, 
increases the profits of the successful entrepreneur, 
by enhancing the cost of production and, conse- 
quently, the price, of that portion of the supi^ly 
which is produced at the greatest disadvantage. 
This enhancement of price is at the expense of all 
who consume the goods so produced ; the laboring 
class equally with others, in theory ; probably in 
fact more than any other, on account of their limited 
ability to look out for their own interests in retail 
trade. 

262. Many causes help to swell the proportion of 
incompetent emjjloyers of labor. 

Shilly-shally laws relating to insolvency do this; 
bad money does this ; truck does this ; slavery does 
this ; "protection" does this. Each of these causes 



214 POLITICAL WONOMT. 

enables men to escape the legitimate consequences 
of business incomx:>etency. 

The more active becomes the competition among 
the wages class, the more prompt their resort to 
market, the more persistent their demand for every 
possible increase of remuneration, the greater will 
be the pressure brought to bear upon such employers 
to drop out of the places into which they have 
crowded themselves at the cost of the general com- 
munity. 

263. Co-operation: Getting rid of the Entrepreneur. 
— In the department of Production we described the 
function of the entrepreneur, the person who hires 
labor, on the one hand, and borrows capital on the 
other, leasing land, in addition, or not, as the case 
may be, and, having thus come into i30ssession of 
two or more of the prime agents of production, in- 
itiates industrial operations according to his own 
plans, and with a. view to his own economic bene- 
fit. Coming down to the department of Distribu- 
tion, we have inquired how the contemplated benefit 
is secured by the entrepreneur, and what are the 
limits of that benefit,^ which we term profits. 

It has been said, in the course of this discussion, 
that this benefit obtained by the entrepreneur, his 
profits, has been the object of not a little jealousj^ 
and envy on the part of the laborers and capitalists 
to whom he has paid wages or interest. Thes^ wages 
and this interest the recipients would be glad to see 
increased by some addition derived from the source 
from which the entrepreneur obtains his profits. 

264. Organized and systematic efforts to get rid 
of the entrepreneur have not been unknown. Among 



CO-OPEItATIOK 215 

the many schemes for largely and rapidly improving 
the condition of the masses of the people, which 
had their birth in the period of social and political 
fermentation which we call the Revolution of 1848, 
none had fairer promise of substantial results than 
that known by the name of Co-operation, by wliich 
is intended an industrial organization from which 
the entrepreneur is excluded, and, under which the 
j)roduct of industry is to be divided into three prin- 
cipal shares, instead of four as under the entrepre- 
neur system. I here only indicate the place which 
co-operation occupies in the scheme of Distribution, 
postponing the discussion of the scheme, as to 
its desirability and practicability, to Part YI. 



CHAPTEE V. 

Wages. 

265. Definition of Wages.— We have seen three 
shares cut oif the product of industry. Of the four 
principal parts''- into which that product is divided, 
under the entrepreneur organization as existing 
almost universally in England and as rapidly ex- 
tending in the United States, on the continent of 
Europe, and in all progressive countries, there re 
mains but one to be treated, Wages, the remunera- 
tion of hired labor. 

Before seeking the law which governs wages, there 
are two distinctions which require to be drawn very 
clearly, that, viz., between real and nominal wages, 
and that between the real and the nominal cost of 
labor. 

266. Real and Nominal Wages.— Real wages are the 
remuneration of hired labor as reckoned in the 
necessaries, comforts and luxuries of life. 

Real wages may differ widely, even when nomi- 
nal wages are of the same amount, by reason of : 

(a) Yariations in the purchase power of money. 

{b) Varieties in the form of payment, as when the 
board of the laborer, the rent of a cottage, the priv- 
ilege of grazing a cow, allowances of certain quanti- 

* Certain minor shares in distribution will be treated in the next 
chapter. For the purposes of the present discussion they may safely 
be disregarded . 



NOMINAL AND REAL WAG£!8. 217 

ties of food, drink or fuel, the right to take flour at 
miller's prices, one or more of these, are added to 
the money wages of the laborer. Such forms of 
payment are not of much importance throughout 
the United States, generally, at the present time ; 
but in many European countries they constitute 
elements which cannot be overlooked in discussing 
the question of comparative wages. 

(c) The greater opportunities, in some avocations 
than in others, of extra earnings, by the laborer him- 
self or by the members of his family. Thus, Prof. 
Senior says : '' the earnings of the wife and children 
of many a Manchester weaver exceed or equal those 
of himself. Those of the wife and children of an 
agricultural laborer, or of a carpenter or coal heaver, 
are generally unimportant." The true unit in the 
comparison of wages is evidently the family. 

267. (d) The greater regularity of employment in 
some avocations than others. Varying regularity 
of employment maybe due to (1) the nature of the 
individual avocation, (2) the force of the seasons, 
(3) social causes, (4) industrial causes, of a general 
character, like strikes, panics and so-called " hard 
times." 

In illustration of the foregoing causes, we have 
the widely varying rates of agricultural wages from 
one season to another, being often twice as great in 
the third as in the first quarter of the year. This is 
due to both of the first two causes adduced. It is 
not alone the difference of the seasons which makes 
agricultural wages so irregular ; in part, also, it is 
the nature of the operations involved. After the 
seed has been planted, time must be given it to 



S18 POLVrtGAL EGONOMY. 

grow, and this would be so, were there no winter. 
In other avocations it is the force of the seasons 
alone which makes employment irregular, as, for ex- 
ample, in the brickmaking, quarrying, carpentering, 
house-painting and other trades. 

Among social causes affecting the regularity of 
employment, as between country and country, may 
be mentioned the observance of festivals and religious 
rites, which among some people occuj)y a hundred 
and more days in the year. 

{e) The longer duration of the labor power in some 
avocations and in some countries, than in others. 

Thus, Dr. Nelson has shown that the mean mor- 
tality in England between 25 and 65 years of age, is, 
in the clerical profession 1.12 per cent. ; in the legal, 
1.57 ; in the medical, 1.81. In domestic service, the 
mortality among gardeners, is but .93 per cent. ; 
among grooms, 1.26; among coachmen, 1.84. Of 
the several branches of manufacture, paper shows a 
mean mortality of 1.45 ; iron, 1.75 ; lead, 2.24 ; 
earthenware, 2.57. 

Dr. Edward Jarvis has shown that on the average, 
an Irishman who has reached the age of 20, has 
28.88 years to live ; a Frenchman, 82.84 ; an English- 
man, 35.55 ; a Norwegian, 39.61. 

It is evident that if two persons begin to labor 
productively at the same period of life and continue 
at work until death, at the same nominal rate of 
wages, that one receives the higher real remuneration 
who lives the longer, inasmuch as the cost of his 
maintenance during the first unproductive years of 
life must, in. any philosophical view of the subject, 
be charged upon his wages during his period of labor. 



COST OF LABOR. 219 

268. Nominal and Real Cost of Labor. — Another dis- 
tinction which requires to be observed is that be- 
tween wages and the cost of labor. 

In treating wages as high or low, we occupy the 
laborer's point of view. In treating the cost of 
labor as high or low, w^e occupy the point of view of 
the emj^loyer. 

Wages are high or low, according to the abundance 
or the scantiness of the necessaries, comforts and 
luxuries which the laborer can command as the re- 
muneration for his services. The cost of labor is 
high or low, according as the employer gets an 
ample or a scanty return for the wages he pays the 
laborer. It is possible that an employer may pay 
high wages, and yet the cost of labor to him may 
prove to be low, by reason of the laborer's superior 
efficiency. 

Indeed, it is probably true that, as a rule, the high- 
est paid labor is that which costs the employer least. 

This is evidenced by the two facts that, generally 
s]3eaking, employers, Avhen they reduce their force, 
discharge their lowest paid laborers first ; and that, 
generally sx3eaking, it is the countries where the 
lowest real wages are paid which feel the necessity 
of imposing commercial restrictions to keep out the 
l^roducts of others. Thus, India, where the cotton 
s^Dinner gets only 20 pence a week, is flooded b}^ the 
cottons of England, where the spinner receives 20 
shillings : and Russia, where the laborer in iron 
works receives but three roubles a week, has to pro- 
tect herself, or thinks she must do so, against the 
iron of England, where the workman receives four 
or five times as much, 



220 POLITICAL ECONOMY. 

269. Relation of Wages to the Other Shares of the 
Product of Industry. — Ifc has not been by accident, or 
whim, or from any notion respecting the comparative 
dignity of the several claimants to the product of 
industry, that rents, interest and profits have been 
discussed before wages. 

This order has been followed for a positive reason, 
which is that, in the theory of distribution here pro- 
posed, wages equal the product of industry minus 
the three parts already determined in their nature 
and amount. In this view, the laboring class receive 
all they help to produce, subject to deduction on the 
three several accounts mentioned. 

270. Rent Deducted. — First, rent is to be deducted. 
On the lowest grade of lands there is no rent. On 
the more productive soils rent, at its economic maxi- 
mum, equals the excess of produce after the cost of 
cultivating the no-rent soils has been paid. This 
rent, as we have seen, does not affect the price of 
agricultural produce, and does not come out of the 
remuneration of the agricultural laborer. 

We thus see that the first deduction to. be made 
from the product of industry is of a j)erfectly definite 
nature. The laborer cannot get it, or any part of it, 
by any economic means. It must go to tlip land- 
owner, unless it be confiscated by the State, or rav- 
ished away by violence. 

271. Interest Deducted. — Secondly, from the product 
of industry must be deducted a remuueration for 
the use of capital. That remuneration must be high 
enough to induce those who have produced wealth 
to save it and store it up, in the place of consuming 
it immediately for the gratification of personal ap- 



INTEREST AND PROFITS. )i21 

petites or tastes. This may imiDly, in one state of 
society, an annual rate of interest of eiglitper cent. ; 
in another, of five ; in another, of three. 

Since the prodnct remaining after the payment of 
interest is always, in theory, equal to what would 
have been the product, had interest not been paid 
(that is, had the capital for the use of which interest 
is paid, not been emi^loyed), and since in fact, the 
product so remaining is always greater ; in general, 
vastly greater, than the product would otherwise 
have been, that party to the distribution of wealth 
whose claims are residual, that is, which takes all 
that no other claimant carries away, is benefited by 
every payment of interest on account of capital used 
in the production of wealth. Indeed, as high in- 
terest, under free competition, shows that the con- 
tribution made to production through each new ac- 
cession of capital is very large, it may be said that 
the residual claimant upon the product of industry 
derives a greater relative benefit through the emj)loy- 
ment of capital where a high rate than where a low 
rate of interest is paid. 

272. Profits Deducted.— The third and last deduc- 
tion to be made from the product of industry 1: ef ore 
the laborer becomes entitled thereto, is what we have 
called profits, the remuneration of the entrepreneur, 
the man of business, the captain of industry, the 
merchant, manufacturer, or banker, who sets in 
motion the complicated machinery of modern XDro- 
duction. 

From the importance assigned, in this work, to the 
entrepreneur function the conclusion might hastily 
be drawn that production would be primarily 



222 POLITICAL ECONOMY. 

for his benefit, that he, if any one, would he the 
residual claimant upon the product ; that, paying 
the capitalist, on one side, enough, under the name 
of interest, to secure the use of his capital, and pay- 
ing the laborer, on the other side, enough, under the 
name of wages, to secure his services, this man of 
business, captain of industry, merchant, manufac- 
turer, or banker, would retain as his own all that 
remains. And so, indeed, in any individual trans- 
action he does, owing to the force ,of contract. 

If, however, we have correctly indicated (pars. 
260-262) the source of the entrepreneur' s profits, they 
are of the same nature as rent. As there are no- 
rent lands, so there is a class of employers who 
derive from the business they conduct a bare sub- 
sistence, at the cost of much anxiety, and perhaps 
also of discredit, many of them living mainly at the 
expense of their creditors. These we call the no- 
profits emi3loyers. From this point, where profits, 
if any, are so small and so hardly earned that they 
may, for scientific purposes, be disregarded, up- 
wards through many grades, we have employers 
who derive moderate profits, liberal profits, grand 
profits, monumental profits aggregating in a life 
time colossal fortunes, according to the degrees in 
which they bring courage, prudence, foresight, fru- 
gality, and authority over men, to the organization 
and conduct of business enterprises. 

If I am right in this view of the nature of the en- 
trepreneur' s function and of the source of his profits, 
those profits would, under full and free competition, 
not form a part of the price of commodities (price 
being determined by the cost of production iinder 



THE LABORER' 8 POSITION. 223 

the most disadvantageous conditions, i.e.^ in tliis 
case, production by the no -profits employers) ; while 
no economic means whatever would suffice to carry 
any portion of profits to wages, even were employers 
forbidden by law to receive profits. In other words, 
tliese profits consist wholly of wealth created by the 
individual employers themselves, over and above the 
wealth which would have been produced, in similar 
industrial enterprises, by the same labor-force and 
caj)ital force under the control of employers of a 
lower grade of economic efilciency. 

273. The Laborer, the Residual Claimant to the Product 
of Industry.— Tliese three shares being cut off the 
product of industry, the whole remaining body of 
wealth daily or annually created, is the property of 
the laboring class, ^ their wages, or the remuneration 
of their services. So far as, by their energy in work, 
their economy in the use of materials, or their care 
in dealing with the finished product, the value of 
that product is increased, that increase goes to them 

* This is substantially the positioa taken by the lamented Prof. 
Stanley Jevons, of University College, London, who states that " the 
wages of a working man are ultimately coincident with what he pro- 
duces, after the deduction of rent, taxes, aud the interest of capital." 
In this matter of Wages, Prof. Jevons emj)hatically repudiates the 
doctrine generally accepted in his own country, saying: " Our En- 
glish Economists have been living in a fool's paradise," and frankly 
ranges himself with the French economists, ''from Condillac, Ban- 
deau, and Le Trosne, through J. B. Say, DeStutt Tracy, Storch, and 
others, down to Bastiat and Courcelle Seneuil." 

"The truth," he declares, "is with the French School, and the 
sooner we recognize the fact, the better it will be for all the world, 
except, perhaps, the few writers who are too far committed to the old 
erroneous doctrines to allow of renunciation." [Preface to the Second 
Edition of his Theory of Political Economy, 1880.] 



224 POLITICAL ECONOMY. 

by purely natural laws, provided only competition 
be full and free."^ Every invention in mechanics, 
every discovery in the chemical art, inures directly 
and immediately to their benefit, except so far as a 
limited monopoly may be created by law, for the 
encouragement of invention and discovery. 

Unless by their own neglect of their own interests, 
or through inequitable laws, no other party can enter 
to make any claim on the product of industry, nor 
can any one of the three parties already indicated 
carry away any thing in excess of its normal share, 
as hereinbefore defined. 

274. What Will They do With it? — We have seen 
what is the best the laboring class can, in theory, do 
for themselves, under the existing organization of in- 
dustry; what is the most they can claim for their ser- 
vices 'i Let us now inquire, what, in fact, this class 
do for themselves in this respect ; and if they fall 
short of realizing their full share of the product 
of industry, to what causes the failure is to be 
attributed. 

The laboring class may do themselves an economic 
injury in either or both of two ways ; first, through 
excessive reproduction, sexually, leading to over- 
population, involving the necessity of cultivating 
poorer and poorer soils, with the result of contin- 
ually diminishing per-capita production ; secondly, 
through a weak, spasmodic, or unintelligent compe- 
tition with the employing class. 

The consideration of the former of these causes of 

economic injury will be postponed till we reach the 

■ — ■ — . — — — ^ 

*A further discussion of this proposition will be found at tlie 
close of the present chapter. 



FAILURE OF COMPETITION. 225 

department of Consunix)tion. The latter will form 
tlie subject of tlie following paragraj^lis : 

275. Imperfect Competition.— A total failure of com- 
petition is, of course, impossible. JSTo class of laborers 
will be found so stolid and inert as to make no exer- 
tions whatever to change a w^orse for a better condi- 
tion, economically. The impulse to buy in the 
cheaper and to sell in the dearer market will, in some 
measure, actuate every body of laborers. Yet the 
degree in whicli that motive is effectual will be found 
to vary widely. 

A century ago Adam Smith wrote : 

'' Eighteen pence a day may be reckoned the com- 
mon price of labor in London and its neighborhood. 
At a few miles' distance, it falls to fourteen and 
fifteen pence. Ten pence may be reckoned its price 
in Edinburgli and its neighborhood. At a few miles' 
distance it falls to eight pence, the usual price of 
common labor through, the greater part of the low 
country of Scotland, where it varies a good deal less 
than in England. Sucli a difference of prices^ 
loMch it seems is not always sufficient to transport 
a man from one parish to another^ loould neces- 
sarily occasion so great a transportation of tlie 
most hnlky commodities^ not only from one point 
to another., dutfrom one end of tlie kingdom^ almost 
from one end of the world, to another., as loould 
soon reduce them more nearly to a level. ^'' 

21 Q. It might be supposed that the increase during 
the century in the facilities for transportation and 
for the diffusion of information would have done 
much to remove the obstructions which, in Adam 
Smith's day, retarded the movement of labor to ity 



226 POLITICAL ECONOMY. 

market ; but tlie force of igndrance, fear and poverty 
is not so easily broken. Prof. Fawcett in his Polit- 
ical Economy writes : " Dnring the winter months, 
an ordinary agricultural laborer in Yorkshire earns 
thirteen shillings a week ; the wages of a Wiltshire 
or Dorsetshire laborer, doing the same kind of work, 
and working a similar number of hours, are only 
nine shillings a week. This great difference in wages 
is not counterbalanced bv other considerations. Liv- 
ing is not more expensive in Yorkshire than in Dor- 
setshire, and the Dorsetshire laborer does not enjoy 
any particular advantages or privileges which are 
denied to the Yorkshire laborer." 

277. Change of Occupation.— So much for the free- 
dom of movement from place to place, which is 
needed to meet the requirements of industrial com- 
petition. Of the freedom of movement from one 
avocation to another, which maybe required for the 
same end, an even less favorable account may be 
given. An American will find it difficult to conceive 
liow slow and painful is the process by which an 
overcrowded avocation is depleted or a growing in- 
dustry reinforced, in any of the States of EuroxDe. 

In his last and greatest work, Professor Cairnes 
sought to reach a measure of the rate of this move- 
ment in England. His result was substantially this : 
that only loss by death or disability could be relied 
upon to relieve the labor market in any branch of 
industry which was overdone, and that the sole 
" disposable fund " for supplying new laborers to 
new or growing branches of industry was to be found 
in the body of persons each year " coming of age," 
industrially speaking. 



IMMOBILITY OF LABOR. 227 

So far, however^ are tlie members of tlie rising 
generation from being x^erfectly free to move into 
avocations otlier than those of their parents, that 
mill-owners are harassed by ax3j)lications from their 
hands to take children into employment on almost 
any terms ; and the consciences of employers have 
reqnired to be reinforced by the sternest prohibitions 
and penalties of the law to save infants of tender 
years * from factory labor, since the more miserable 
the parents' condition, the greater becomes the 
X3ressure on them to crowd their children into service ; 
the scantier the remuneration of their present em- 
ployment, the less becomes their ability to secure 
the better disposition of their offspring. Once in a 
mill, we know how little chance there is of the 
children afterwards taking uj) for themselves another 
way of life. 

In the agricultural districts of England, within 
recent years, gangs of children of all ages, from six- 
teen down to ten or even five years, have been formed, 
and driven from farm to farm, and from parish to 
parish, to work all day under strange overseers, and 
to sleep at night in barns, huddled together without 
distinction of sex. 

Even so late as 1870, children w^ere employed in 
the brickyards of England, under strange task- 
masters, at three and a half years of age. 

Such instances show the error of supposing that 
parents who are tied down hopelessly to an occu]3a- 
tion which affords but the barest subsistence can 

* Sir Arch. Alison states that the passage of the first labor act, of 
1802, found children only three years old employed in the cotton 
factories of England. 



228 POLITIGAL BGONOMY. 

freely dispose of their cliildren to the best advantage 
among a large class of occupations. The truth is, 
that until you secure mobility to adult labor 
you will fail to find it in tlie rising generation^ 
and that among an ignorant and degraded popula- 
tion four-fifths, perhaps nine-tenths, of all children, 
by what may be called a moral necessity, follow the 
occux)ations of their parents, or those with whom 
fortune has i)laced them. 

278. The Industrial Effects of a Failure of Competi- 
tion.— If industrial movement maybe thus tardy and 
limited, even among a people of Teutonic blood and 
enjoying free institutions, it becomes a matter of 
serious economic concern to inquire what are the 
industrial effects of a partial failure of competition. 

And, first, let us see just what it is that we look to 
competition, when active and complete, to accom- 
13lish. 

We have defined competition to be the operation 
of individual self-interest among buyers and sellers. 
We saw that this implied that each man acts for 
himself, by himself, solely, in order to get the most 
he can from others, and to give the least he must, 
himself ; and that comj)etition is opposed in principle 
alike to combination, to custom, and to the influence 
of the sentiments of charity, gratitude or patriotism, 
in exchange. 

Now, this may appear a very unamiable thing ; 
yet, rightly viewed, perfect competition would be 
seen to be the order of the economic universe, as 
truly as gravity is the order of the physical universe, 
and to be not less harmonious and beneficent in its 
operation. 



DEGRADATION OF LABOR. 229 

279.— The Economic Harmonies. — Wlien we say that 
through competition one reaches his best marl^et, 
does this mean that he does that whicli is best for 
himself alone ? On tlie contrary, he does not only 
that whicli is best for himself, but that, also, which 
is best for others. He not only gets more than b}^ 
resorting to any other market, but he gives more 
also. If in that market his service or commodity 
bears a higher price than elsewhere, that is of itself 
a proof that his service or commodity is there in 
greater demand, more needed, the subject of an 
intenser want, than elsewhere. 

280.— The Possible Degradation of the Laborer. — But 
the main office of competition is to preserve indi- 
viduals and classes from destruction or industrial 
degradation through excessive burdens imposed by 
authority, through natural catastrophes affecting 
the sources of livelihood, or through the gradual 
decay of commercial demand. 

Deal the heaviest blow you can with a hammer 
into a bin of barley, and you will not injure a single 
grain, though the hammer be buried to your hand, 
because every grain moves freely from its place, and 
the mass simply o^oens to receive the intruding sub- 
stance and closes around and above it. Lay one of 
the grains ujDon a rock, and a blow of a twentieth 
part the power will smash it into a paste. Let the 
stoutest ship that ever rode out a hundred gales have 
her bow lodged in the sands, and the oncoming 
waves of the first storm will break her up in a few 
hours, and scatter her planks and her cargo in com- 
plete wreck along the shore. 

In the nature of the case, blows must fall, from 



230 POLITICAL ECONOMY. 

time to time, upon every industrial community or 
class. Whether tliese be due to wars or failures of 
the harvest, or to conflagrations and floods, or to the 
shifting of commercial demand, or to vicious legis- 
lation, labor has an ample security against any deep 
and permanent injury, so long as its actual mobility i 

is unimpaired. On whatever spot the blow may fall, I 

complete freedom of movement, from place to place | 

and from avocation to avocation, will cause the ^ 

original loss to be distributed over the industrial 
body, while the forces of repair and restoration will 
immediately set to work to make good what has 
been taken away. 

281.— To Him That Hath Shall be Given. — This tend- 
ency to the diffusion of all benefits and the equal- 
ization of all burdens, and to the repair of all local 
injuries at the expense of the vital powers of the 
whole industrial body, which is effected through the 
natural operation of the laws of trade under free 
and full competition, we term the Economic Har- 
monies. But the political economist is bound to 
note, not only that the assumption of full and free 
competition, which underlies this theory of the self- 
protecting power of labor, is wholly gratuitous as 
applied to vast portions of the earth' s population ; 
but, also, that, when the mobility of labor becomes 
in a high degree impaired, the reparative and restor- 
ative forces do not act at all, but, on the contrary, a 
new and altogether antagonistic principle begins to 
ox)erate, viz., the principle that *'to him that hath 
shall be given, and from him that hath not shall be 
taken away even the little that he seemeth to have.''' 
Under the rule of this great economic as well as 



TEE LAISSEZ-FAIRE DOGTBINE. 231 

social law, industrial injuries once suffered tend to 
remain, and not to be removed. 

282. What may help the Laboring Class in Competi- 
tion for the Product of Industry.— Granting tliat perfect 
competition would do all that has been claimed for 
the working classes, realizing the very ideal condi- 
tions under which they should work, but, at the 
same time, recognizing the fact that, in industrial 
society as now constituted, competition is very par- 
tial and incomplete, let us inquire what, if anything, 
can be done to help the laboring classes in their com- 
petition for the product of industry. 

The answer of the economists of the laissez-faire 
school to this inquiry is a very easy one. Freedom 
being the ideal condition, and society suffering from 
lack of it, let us have all the freedom we can get, at 
this time, and thus prepare the way for more of it 
in the time to come ; let us abolish every thing in the 
way of restraint or regulation, every thing in the 
way of concert or combination in industry, which 
we can abolish, and trust to the future for doing 
away with those obstructions to the freedom of in- 
dustrial action and movement which are now bevond 
our reach. 

283. Economies and Polities.— This answer is so easy 
as not unfairly to arouse some suspicion. Do we 
deal in this spirit with the question of progressive 
freedom in government % Is it not admitted by the 
most ardent friends of freedom, that discretion and 
order must be observed in removing political checks 
and balances and limitations \ Are there not, in any 
well-organized society, restrictions which correspond 
to certain human infirmities of which we cannot now 



232 POLITICAL ECONOMY. 

liope to rid the race, in sncli a way that the existence 
of the restrictions increases the actual degree of free- 
dom enjoyed by the community, while the removal 
of these would in the present unmistakably diminish 
the general freedom of action on the part of members 
of the community ? 

284. The Burning Theater.— But if any reader dis- 
trusts an analogy drawn between economics and 
politics, let us take a case from real life where all 
the elements can be easily and confidently grasped. 

Suppose a crowded audience to be seeking to 
escape from a theater which has taken fire. There 
might be time enough to allow the safe discharge of 
all in the house, and, if so, the individual interest 
of each i)erson clearly would coincide with the in- 
terest of the audience viewed collectively, namely, 
that he should fall in precisely according to his 
position relative to the common place of exit, and 
should move just so fast and no faster, according to 
the rate of discharge from the building into the 
outer air. Yet, human nature being what it is, we 
know that there would be great danger of a furious 
rush for the door, which would lead to the very 
serious retardation of the movement of the audience 
as a whole, and probably to many persons being- 
trampled upon or burned. 

Suppose, now, that at the moment of alarm, a 
score of resolute policemen were to present them- 
selves and take control of the audience, what could 
they do ? Clearly they could not cause the audience 
to be discharged more quickly, safely and harmo- 
niously than would be the case did every person in 
the audience truly comprehend the situation and act 



ALWAYS A PRACTICAL QUESTIOK 233 

coolly witli reference to liis own interest, as above 
stated ; but, as compared, not with what the 
audience ought to do, but what they probably would 
do, the advent of the policemen would save many 
limbs and lives, perhaps avert a calamity that would 
have filled the world with horror. 

285. Registration of Land.— But if any one is still 
disposed to distrust all analogies drawn between 
things inside and things outside the sphere of 
economics, let us take the case of a regulation pre- 
scribing the registration of real estate and the re- 
cording of all transfers and mortgages of land. 
Such a regulation v/ould be restrictive upon trans- 
fers. Transfers would be required to be made in 
writing and after a definite form ; certain words 
must be used to make the instrument effective ; a 
certain delay must be submitted to ; an office, per- 
haps at a distance, must be visited ; copies must be 
made ; a fee must be given. 

Yet who does not know that a regulation of this 
character, though in name restrictive, would in fact 
not retard but immensely X3romote the transfer of 
real estate ? The slow and costly transfer of this 
species of x^roperty in England, where no such sys- 
tem of registration exists, in comparison with its 
cheap and easy transfer in the United States, affords 
a measure of the force of this cause. 

286. Always a Practical Question.— Perhaps enough 
has been said to show that the question whether a 
certain act, ordinance or social arrangement retards 
or promotes the movement of labor to its market, is 
a practical question, to be considered and decided 
with reference to the existing condition of industrial 



234 POLITICAL ECONOMY. 

society and to the actual infirmities or liabilities of 
the laboring population to which it was intended to 
apply. "^ A crutch operates only by restraint, and 
to a man of sound limbs can be only a hindrance ; 
but it is a restraint which corresponds to the infirm- 
ity of a cripple, and may be the only means of 
enabling him to walk, or even of keeping him from 
falling hopelessly to the ground. 

In application of these remarks, a brief discussion 
of the influence of Trades Unions and strikes upon 
wages and upon the condition of the laboring class 
will be found in Part VI. 

287. Wages and Public Opinion.— Is it consistent 
with economic principles that a favorable public 
opinion should enhance wages \ 

In the first place, why any incredulity on the first 
suggestion of the subject ? Is it not true that senti 
ments of personal kindness and of mutual respect 
between classes of the community have had a very 
important influence, in many countries (see pars. 
223-7), in determining the rates at which land should 
be leased ? And if public opinion may be a very 
powerful, often a predominant, force in determining 
the rent of land, why should we not expect that it 
would have at least an appreciable force in determin- 
ing wages? 

288. The Reason of the Case.— But let US leave ana- 
logy, and turn to the reason of the individual case. 
How can the sentiments we have invoked become 

* " The outcome of the inquiiy is that we can lay down no hard and 
fast rules, but must treat every case, in detail, upon its merits. Spe- 
cific experience is our best guide, or even express experiment where 
possible." Jevons— " The State in Relation to Labor." 



SENTIMENT IN ECONOMICS. 235 

an economic force, and thus enter into the distribu- 
tion of Avealth between the several classes which 
unite in its production ? 

Let us recall the ijrinciple, so often insisted on, 
that it is only as comi:)etition is i3erfect that the 
wages class have any secuirity that they will re- 
ceive the highest remuneration which the existing 
conditions of industry will permit ; let us recall, 
moreover, that the failure of competition may be due 
to moral as much as to physical causes ; that if the 
workman from any cause does not pursue his in- 
terest, he loses his interest, whether he refrain 
from bodily fear, from poverty, from ignorance, 
from timidity, or dread of censure, or from the 
effects of bad political economy, which assures him 
that if he does not seek his interest his interest will 
seek him. 

Now I ask, can it be doubtful that the respect and 
sympathy of the community must strengthen the 
wages class in this unceasing struggle for economic 
advantage ; must give weight and force to all their 
reasonable demands ; must make them more reso- 
lute and patient in resisting encroachment ; must 
add to the confidence with which each individual 
laborer Avill rely on the good faith of those who are 
joined with him in his cause, and make it harder for 
any weak or doubtful comrade to succumb in the 
contest ^ 

And, on the other hand, will not the consciousness 
that the w^hole community sympathize with the 
efforts of labor to advance its condition, by all fair 
means, inevitably weaken the resistance of the em- 



236 POLITICAL ECONOMY. 

ploying class ^ to claims which can be conceded, 
diminish the confidence with which each employer 
looks io his fellows to hold out to the end, and make 
it easier for the less resolute to retire from the con- 
test and grant, amid general applause, what has been 
demanded ? 

289. Recapitulation.— I may briefly summarize as 
follows the views thus far presented, on the subject 
of wages under the entrepreneur organization of 
industry : 

1st. I hold that wages equal the whole product, 
minus reiit, interest and profits. 

2d. In reaching the origin and limit of profits, the 
remuneration of the employer, as distinguished 
from interest, the remuneration of the non-employ- 
ing capitalist, I closely affiliate profits with rent. 

3d. In determining how much in the shape of 
rent, interest and profits, shall be taken out of the 
product before it is turned over to the laboring 
class to have and to enjoy, I hold that the only 
security which the laboring classes can have that no 
more will be taken than is required by the econo- 
mic principles governing those shares, respectively, 
is to be found in full and free competition, each 
man seeking and finding his own best market, un- 
hindered by any cause, whether objective or subjec- 
tive in its origin. In other words, I reject the doc- 
trine, that if the laborer does not seek his interest, 
his interest will seek him, and hold, instead, that if 



* "Masters are always and every where in a sort of tacit, but con- 
stant and uniform, combination not to raise the wages of labor aoove 
their actual rate."— Adam Smith: " Wealth of Nations," 



EFFEGT8 OF IMPERFECT COMPETITION. 23? 

the laborer does not seek his interest, he loses it, in 
greater or smaller measure. 

4th. In the failure of competition, I hold that 
economic injury, more or less serious, may be 
wrought upon the laboring class. 

{a) By the lowering of the standard of the employ- 
ers of labor, allowing persons to remain in charge of 
production who would be driven out by a stronger 
competition, and thus increasing the aggregate 
amount of profits. 

(J)) By the breaking down of the industrial 
quality of the laboring class, through a reduction 
of wages wdiicli in time tells prejudicially upon 
their health, habits and spirit. Of this we shall 
speak further in the next chapter but one. 

5th. In opxDosition to the orthodox doctrine that 
all such economic injuries are in their nature tem- 
porary and tend to disappear, I hold that, so far as 
purely economic forces are concerned, they tend to 
perpetuate themselves and to grow from bad to 
worse ; and that only social and moral forces, like 
charity, education, religion, political ambition, en- 
tering from the outside, or physical forces, like the 
discovery of new principles of chemical or mechani- 
cal action, or of new resources in nature, can restore 
the economic equilibrium if once destroyed through 
the weakness of the laboring class. 

6th. That among laboring populations whose free- 
dom of movement has become greatly impaired, 
either by the force of law or by their own poverty, 
ignorance and inertia, restrictions and regulations 
from the outside, or combinations among the labor- 
ers themselves, although these do in form violate thQ 



238 POLITICAL ECONOMY. 

X)rinciples of competition, may yet, in so far corre- 
sjDond to the infirmities of sucli populations as to have 
the effect to promote, it may be greatly to promote, 
the actual efficiency with which the laboring class 
seek their own interests, in the distribution of the 
product of industry. 

290. The Doctrine of Laissez Faire.— What, then, be- 
comes of the characteristic doctrine of the so called 
Manchester School, laissez faire : hands off : leave 
economic forces to work, alike unaided and unhin- 
dered, in the assurance that the interests of individ- 
uals will be found to harmonize so far with the 
interests of the community as to secure the highest 
w^elf are of each and of all ? 

"There is no evidence," says Prof. Cairnes, 
" either in what we know of the conduct of men, in 
the present stage of their development, or yet in the 
large experience we have had of the working of 
laissez faire^ to warrant the assumption that lies at 
the root of this doctrine. 

"Human beings know and follow their interests 
according to their lights and disj)ositions ; but not 
necessarily, nor in practice always, in that sense in 
which the interest of the individual is coincident 
with that of others and of the whole. It follows 
that there is no security that the economic phe- 
nomena of society, as at present constituted, will ar- 
range themselves spontaneously in the way which is 
most for the common good. 

"In other words, laissez faire falls to the ground 
as a scientific doctrine. I say as a scientific doc- 
trine ; for let us be careful not to overstep the limits 
of our argument, It is one thing to repudiate the 



WAGES. 239 

scientific authority of laissez-faire, freedom of con- 
tract, and so forth ; it is a totally different thing to 
set up the opi30site principle of state control, the 
doctrine of j)aternal government. 

" For my part, I acce]3t neither one doctrine nor 
the other ; and, as a practical rule, I hold laissez- 
faire to be incomxDarably the safer guide. Only 
let us remember that it is a practical rule, and not a 
doctrine of science ; a rule in the main sound, but, 
like most other sound practical rules, liable to 
numerous exceptions ; above all, a rule which must 
never, for a moment, be allowed to stand in the way 
of the candid consideration of any promising pro- 
posal of social or industrial reform." 



SOME ADDITIONAL REMAEKS ON THE RELATION OF 
WAGES TO THE OTHER SHARES OF THE PRODUCT 
OF INDUSTRY. 

Certaia criticisms upon the larger worls from whicli the present 
manual has been abridged, have shown me that the full significance 
of the term " residual Q\'d\m.dait upon the product of industry" has 
not been understood. 

Some have asked what difference it makes whether wages are the 
leavings of profits, or profits the leavings of wages ? I shall attempt, 
therefore, to express more distinctly the force of this term. 

Let us suppose a definite territory to be inhabited by a population 
engaged wholly in raising a certain vegetable fiber from the soil, card- 
ing and weaving that fiber and fashioning it for the uses of the in- 
babitants of neighboring regions with whom they have close relations 



240 POLITICAL ECONOMY. 

in trade. Let us suppose that the production of this community stands, 
at a certain time, at a certain amount, which we will express by the line 



ax. This produce, in this amount, is divided by the economic forces 
at present operating into four shares, ah, rent ; he, interest ; ed, 
profits ; dx, wages. 

Now let it be supposed that, all other elements and conditions re- 
maining the same, the population is changed over night, so that 
a distinctly higher class of laborers are found at work the next 
morning, with subtler instincts, quicker and neater in manipulation, 
having greater carefulness and prudence in the performance of work, 
more temperate in their habits, and more attentive to their duties, 
with the natural result that of the raw material consumed a saving 
is effected, through preventing waste and botch work, which enables 
five per cent, more of goods of equal quality to be produced. This 
is not an extreme supposition. As between workmen of one industrial 
grade and those of another, the difference in waste is often mucli 
greater. 

We might also have supposed a gain to take place in the quality of 
the goods produced ; or an increase in the amount of material used to 
make up, with like economy, a much larger body of goods ; but these 
and many other suppositions would unnecessarily complicate the 
problem. Let us, then, stick to our original supposition, that the 
amount of goods is increased five per cent, by avoiding a part of the 
waste previously occurring in the use of material. To whom will this 
additional product go, through the normal operation of economic 
forces ? To the landlord class ? No ; clearly, for the material used 
now makes no larger draft upon the productive capabilities of the 
soil than formerly, and hence calls no lower grade of land into culti- 
vation. The line, ah, therefore, remains of the same length. Will it 
go to the capital class, as additional interest ? No ; why should it ? 
An intelligent, neat, careful workman requires no more tools than an 
ignorant, slovenly and heedless workman ; the substitution of work- 
men of the former for those of the latter class, in the case supposed, 
would, therefore, clearly have no tendency to increase the demand 
for capital, or to diminish the supply. The line he, would conse- 
quently not be lengthened by any increase in the length of the line 
dx, due to the cause indicated. Will the line, cd, be lengthened ? 



WAGES. 241 

Will any larger amount of the aggregate produce go to the employers 
of labor, in the form of profits ? So far as the force of existing con- 
tracts is concerned, this might be the case ; but we have expressly 
excepted the force of contract from our proposition regarding the 
distribution of the product of industry. In framing new contracts 
for labor, however, will the employiog class be able to get their 
hands upon this increased product or any part of it ? Herein lies the 
whole question. The landlord cannot get it or any part of it ; the 
capitalist cannot get it or any part of it. Will the employer prove 
stronger in his economic position than either landlord or capitalist, 
and wrest this increment of product or any part of it, for his own 
emolument ? Now, if the view of the function of the employing 
class, and of the origin of profits, heretofore offered (Chap. IV.), justly 
represents the substantial facts of modern industrial society, this 
would not be the case. 

The substitution of intelligent, neat and careful workmen for those 
of a poorer industrial quality has no tendency to lower the standard 
of the employing class ; to drive production down, so to speak, to a 
less efficient grade of entrepreneurs ; and, consequently no tendency 
to enhance the volume of profits realized by the employing class, as a 
whole, since, as we saw, the profits of the successful employers are 
measured upwards from the line of the no- profits employers. Hence, 
the line cd will not be lengthened by any increase which may take 
place in the total length of the line ax, through the cause indicated ; 
and as we have shown successively that the same is true of ah, and of 
he, it follows that all increase in the length of ax will be found to 
take place within that part of it which has been designated as 
dx, representing the M^ages of labor. This is what I mean by 
the laboring class being the residual claimant upon the prod- 
uct of industry ; and this I believe to be, upon the assumption of 
perfect competition^ both profoundly true and of illimitable 
importance in economics. 

Indeed, so far are the lines he, and cd, in the foregoing illustration 
from being lengthened by any increase in the total length of the line 
ax, produced through such a cause as that indicated, that it would be 
easy to show that they are likely to be cut down through thQ opera- 
tion of that cause. Good workmen do not only not require more 
tools than bad workmen, to perform the same kind and amount of 
work, but, when in large numbers, they actually require fewer by 
reason of greater intelligence and carefulness in the use of them. 

Again, not only is no increase of profit^ except through the forge 



'242 POLITICAL ECONOMY. 

of contract, necessarily involved in an increase of production effected 
by an improvement in the industrial quality of the laboricg class ; 
but, as I have sought to show [par. 262] an improvement in the in- 
dustrial quality of the laboring class tends directly, and tends strongly, 
to cut off the employers of the lowest grade ; to drive them out of the 
positions which they have held solely by reason of inadequate com- 
petition ; and thus, by raising " the lower limit of cultivation," in 
this respect, to diminish the aggregate volume of wealth going as 
profits to the employing class, just as the throwing of the lowest 
grade of soils out of cultivation diminishes the aggregate volume of 
wealth going, as rents, to landlords. 

Now, what we have here shown to be true of an increase of pro- 
duction caused by an improvement in the industrial quality of the 
working classes, would hold true, in the main, of any discovery or 
invention, chemical or mechanical, which utilized material previously 
lost or wasted. Except only as far as a limited monopoly might be 
created by law, for the encouragement of invention and discovery, 
the whole fruit of such a gain in productive power would go to the 
laboring class through the normal operation of economic forces. 
Rents would not be increased ; interest would not be increased ; prof- 
its would not be increased ; wages, and wages only, would be in- 
creased. 

I have thus far, for simplicity of reasoning, confined my illustra- 
tions to cases where a saving of material is effected, either through an 
improvement in the industrial quality of the working classes, or 
through some chemical or mechanical discovery or invention. 

But suppose the gain in productive power, arising through an im- 
provement in the industrial quality of the working classes, should be 
such as to call for a larger quantity of raw material, and thus a lower 
grade of soil should be brought under cultivation. Suppose it to be 
such, also, as to require, for its full realization, new and finer and 
stronger tools and machines, and that thus a greater demand for cap- 
ital should be created. How would the wages of labor then stand 
related to the product ? 

It is clear that, according to the principles which have been 
laid down in Chapter II. , the aggregate volume of rents would be 
increased, in some amount, little or great. It is clear, also, that the 
demand created for more capital would tend to raise the rate of 
interest, in some degree, small or large. Whether the profits of the 
employing class should be increased at all, would depend wholly on 
the answer to the prior question, whether the increment of production 



tVAGES. 343 

came in such a way as to call into service a lower grade of entre- 
preneurs, which might or might not be the result. 

But I do not fear that any one who in general assents to the eco- 
nomic views which have been presented in this work regarding the 
distribution of wealth, will for a moment question that while rents 
and interest, and perhaps, also, profits, would be increased, through 
the operation of such a cause, wages would still remain the residual 
share of the product, in the sense which has been here indicated : 
would, that is, absorb all the gain which did not accrue, under per- 
fectly definite restrictions, to the other shares, provided only, and 
provided always, that the laboring class, on their part, fulfill the con- 
ditions of a perfect competition. 

Herein lies the natural advantage of the economic position of the 
laboring class, as I have sought to show it. The question which has 
been previously asked — WJiat toill tJiey do with it f — is the greatest of 
economic, as it is the greatest of social, questions. That advantage 
may be at any time and to almost any extent forfeited by the wages 
class, first, through excessive reproduction sexually, the course and 
effect of which will be traced within the department of Consumption, 
or, secondly, through a failure, by reason of ignorance, inertia, fear 
or poverty, to seek and find their best market, with consequences 
which have already been sufficiently explained. 



CHAPTER yi. 
Some Minor Shares in Distribution. 

291. We have discussed the distribution of the 
product, under the entrepreneur organization of in- 
dustry. We have seen that this product is divided 
into four principal shares, rent, interest, profits and 
wages, corresponding to four classes of claimants. 
We have now to inquire what becomes of certain 
portions of the product, w^hich do not aj^pear to go 
into either of the four shares enumerated. And first 
of the amount taken by government. 

292. Taxation. — There has long been a difference 
of ox>inion among economists, whether taxation 
should be a title in distribution or in consumption. 

The difference is Just this : Shall we regard gov- 
ernment as a fifth original claimant upon the prod- 
uct of industry, taking its share under the name 
of taxes, as the land-owner takes rent, the capital- 
ist interest, the emiDloyer profits, and the laborer 
Avages ; or shall we regard the j)roduct as divided 
into four shares, out of each of which is paid, as one 
form of the owner's consumption of his income, a 
sum, greater or less, for the sustentation of govern- 
ment, just as out of each such share are paid sums, 
greater or less, for shelter, for food, for fuel, etc. ? 

The question is not a very important one, and 
neither decision solves all the difficulties of the case, 



THE REVENUE OF GOVERNMENT. 245 

since the functions of government are so various and 
so widely diverse. 

On tlie one liand it is said that government is a 
great producer and sliould be regarded as a claim- 
ant in distribution, taking its share under the name 
of taxes. Government builds and keeps in rex:»air 
roads and bridges and breakwaters and, perhaps, 
also, canals, railways and telegi'aj)hs, for the pur- 
poses of trade and industry. Government main- 
tains a constabulary and court-houses and jails, 
that the honest and industrious may work without 
hindrance or even fear of molestation. Government 
does a great many other things which minister 
directly to the creation of values. 

On the other hand, it is said that a great part of 
what government does has not the production of 
wealth as its primary object ; and, secondly, that, 
whatever the objects of expenditure, government 
does not obtain its revenue through the agencies 
of exchange, but by forcible collection, men con- 
tributing to the support of government, not because 
government is prepared to render an equivalent for 
what it receives, bnt simply because government 
demands the contribution and will have it. 

293. As has been said, the question is not free 
from difficulties, whatever course be taken. A 
thoroughly consistent treatment of the subject of 
taxation would require the appearance of this title 
in more than one department of x^olitical economy. 

ia) The function of government in the creation of 
values is extensive and imjDortant under the modern 
organization of industrial society. The building and 
maintenance of roads and bridges, of breakwaters 



246 POLITICAL ECONOMY. 

and lightliouses, the opening of harbors, and tlie 
improvements of rivers, all directed, as tliey are, 
towards the end of a larger production of wealth, 
form a notable part of the industrial agencies of all 
progressive communities. 

(b) The methods of taxation, the subjects of im- 
position, the agencies of collection, so far as they 
affect the ultimate incidence of taxation, that is, so 
far as they determine that the pressure of taxation 
shall finally rest here and not there, on this class 
and not on that, fall within the department of Dis- 
tribution. 

{c) The effects of the expenditure by government 
of a certain amount of wealth, as contrasted with 
the effects of the expenditure of the same amount 
by the classes who pay taxes, belong to the depart- 
ment of Consumption. 

294. id) The questions, how the largest amount of 
revenue can be secured with the smallest cost of 
collection ; how the needed revenue can be procured 
with the least irritation of the public mind ; how the 
highest assurance can be obtained as to the proper 
custody and disbursement of the funds collected ; 
these and the like are questions in fiscal or ^' Camer- 
alistic" science, and not in economics strictly con- 
sidered. 

{e) In addition to the question, stated above, 
what is the ultimate incidence of any existing or 
projected body of taxes ; who, in the last resort, 
pays them ; whose sum of enjoyment is actually 
diminished by the imposition, we have a question, 
to which writers on taxation devote a large part of 
their space, viz., who ought to pay the taxes of any 



THE STIPEND CLASS. 24? 

given community : what classes should contribute to 
the sujDport of the goverment, and in what propor- 
tions ? 

This is purely a question in political equity. 

The foregoing would be the true logical treatment 
of taxation, in a work on political economy. In an 
elementary treatise, however, I do not deem it worth 
while to deal so elaborately w^ith this subject, and 
will postpone to Part VI. whatever I have to say 
regarding taxation, except so far as it may be 
desirable to speak of the influence of governmental 
expenditures in the department of Consumption. 

295. The Stipend Class.— For convenience of charac- 
terization, I apply the term Stipend Class to all 
those persons who are employed, not as a means to 
increase the income of their employers, but for the 
purposes of comfort, of leisure, of luxury, of dig- 
nity, or for the cultivation of intellectual faculties 
or moral graces. This class embraces many of the 
highest and many of the lowest members of society. 
At the one end of the scale, we have the menial serv- 
ant ; at the other, the minister of religion, the 
teacher of science, and the artist. To this class 
belong the soldier, the public official, the man of 
letters, the lawyer, and the physician. 

The test for discriminating the wages class from 
the stipend or salaried class, is found in the ex- 
pectation or non-expectation of profits. Where the 
reason for the employment is found in the expect- 
ation of the employer that he will realize a profit 
by the labor or service, there we have the true sign 
of the wages class ; where that expectation does not 
exist, w^e recognize the characteristic of the stipend 



248 POLITICAL EGONOMY. 

class. Hence, we may broadly say : no profits, no 
wages. 

Let lis take, for illustration, tlie domestic serv- 
ant. He is not employed as a means to his mas- 
ter's profit. His master's income is not due, in any 
part, to his employment ; on the contrary, that in- 
come is first acquired, or reasonably assured, as a 
condition to the servant being employed at all ; and 
just so far as servants are employed that income is 
ex]3ended. As Adam Smith remarks: '^A man 
grows rich by emyjloying a multitude of manufac- 
turers {i. e. , of operatives) ; he grows poor by main- 
taining a number of menial servants." 

On the other hand, the wage laborer is employed 
with a view to the master's profit ; the master's in- 
come is derived from such employment, and, with 
good management, is greater the larger the number 
of persons employed. 

"Though the manufacturer," says Adam Smith, 
meaning thereby what we would call the operative, 
"has his wages advanced to him by his master, he 
in reality costs him no expense, the value of those 
wages being generally restored, together with a prof- 
it, in the improved value of the subject upon which 
his labor is bestowed. But the maintenance of a 
menial servant is never restored." 

296. I shall remit to the department of consumption 
all that it may be needful to say of this class. 
The income by which they are supported is not of 
their own making. They are supported out of the 
revenues of others. The future production of 
wealth may or may not be increased by virtue of 
their present employment. That is exactly the 



TBB BPEGULATING GLASS. 249 

q^uestion wMcli we have to treat under the title 
consumption. We shall find that indirectly many 
members of this class minister most importantly to 
the economic greatness of their country, by nour- 
ishing j)ersonal virtue, by raising the standard of 
social ambition, by preserving life and health, by 
quickening the general intelligence of the laboring 
class, or by discovering new principles of chemical 
and mechanical action, or new applications of 
familiar principles to the arts, which may vastly 
increase the productive capability of the next 
generation. 

But all this has reference to the future, to a 
future more or less distant. In the immediate 
present these persons are not producing, but consum- 
ing, wealth. They are supported out of the revenues 
of others. 

297. The Speculating Class.— Incidental to all the 
processes of production and exchange is the chance 
of gain or loss through the rise or fall of prices dur- 
ing the interval between buying and selling ; be- 
tween making and selling. This gain or loss may 
be very slight, in any given case, or it may be very 
considerable. 

Within this field, so far as the great body of 
business men are concerned, fortune holds undis- 
puted sway. They lack, not only in degree but in 
kind, the faculty to discern the signs of the future ; 
they do the best they can to produce good articles 
cheaply, to meet the demands of the public as to 
fashions and styles, to keep their general expenses 
down, and to avoid losses by bad debts. When 
they have done this, they have done all they can 



S50 POLITICAL ECONOMY, 

for themselves ; and whatever gains or losses come 
to them through the fluctuations of the market, 
come as if wholly by chance. There are other 
men who have a rare power to apjjrehend in ad- 
vance the movements of the market. Whichever 
way the market turns, it seems as though the sole 
object were to enrich these fortunate beings. 

Of course, all this is speculation ; yet when it is 
carried on incidentally to a legitimate manufacturing 
or trading business, we do not call these men specu- 
lators. 

298. In every progressive commercial community, 
however, is found a large and increasing number 
of persons who, either possessing this rare facultj^ 
of discerning the signs of the market, or flattering 
themselves that they possess it, make a business of 
buying or selling according to their anticipations 
of a rise or a fall. These persons are not manu- 
facturers ; they are not merchants, in any proper 
sense ; they do not buy from producers or sell to 
consumers ; they are neither importers, jobbers, 
wholesalers nor retailers ; they have perhaps no 
stores or warehouses or stocks of goods. They 
simply bet upon the market, having a well or ill- 
founded opinion of their own shrewdness and cool- 
ness in doing so. They may lose a fortune, or make 
a fortune. 

299. The Economic Function of Speculation.— Of spec- 
ulating as a business, two things may be said. 
First, it is surprising what an enormous aggregate 
of transactions a man of little capital and no brains 
to speak of, may conduct in the course of his life, 
and yet neither lose nor gain much if only he 



THE OFFICE OF SPECULATION'. 251 

confines himself to small individual oj)erations. 
Secondly, not less surprising are the gains of specu- 
lation when conducted by a real master. The 
amount of wealth that can be brought into his 
hands appears fabulous. Every year an appreciable 
j)ortion of the jjroduct of industry passes into the 
possession of tlie men of this class. 

Speculation is not wholly without its advantages 
to the community. If corn is likely to be scarce 
and, by consequence, high, four months hence, the 
man who now begins to buy does, in so far, call 
attention to that probability, and, by raising the 
price, advertises, so to speak, for an increased sup- 
ply to be brought in from the outside, or for greater 
carefulness in husbanding the existing stock. If 
beef is likely to fall in price, sixty days hence, the 
man who now sells does what lies in him to give 
notice of an excess of supply, and thus affords 
duller-witted holders opportunity to get rid gradually 
of their stock. 

In a word, speculation while confined within 
moderate limits, is the agent for equalizing supply 
and demand, and rendering the fluctuations of price 
less sudden and abruj)t than they would otherwise 
be. 

300. Causes which Increase Speculation.— There are 
causes, however, which go to render speculation 
extravagant, carrying it beyond all reasonable 
bounds, multiplying the numbers of the speculat- 
ing class and vastly increasing their gains, at the 
expense of the sober, productive industries of a 
country. Foremost among these is a vicious money 
system. The fri^-htful extent to which this causQ 



252 POLITICAL ECONOMY. 

engenders speculation may be seen in the history of 
the '' Continental" money of the American revolu- 
tion, of the ^^Assignats" of the French revolu- 
tionary period, and of the ' ' Greenbacks ' ' of the 
war of Secession. With prices fluctuating vio- 
lently and rapidly, as the r.esult of bad money, the 
opportunities for acquiring large wealth by spec- 
ulation are increased ten-fold, it may be a hundred- 
fold. 

301. Loaded Dice.— Of much of the speculation 
which is practiced in the United States and in other 
countries, though perhaps not so grossly elsewhere 
as here, it must be said that it is wholly beyond 
economic, as well as moral sympathy. If all spec- 
ulation is gambling, this is gambling with the dice 
loaded. By means of combinations and corners, 
the markets are often profoundly influenced in 
order to produce the very fluctuations on which the 
grain or petroleum or stock gamblers have made 
their bets. The mischiefs suffered by trade and in- 
dustry, originating in this source, are monstrous, 
even incalculable. 



CHAPTER YIT. 

The Reaction" of Distkibutiok upon* Pkoduc- 
TioiN^ : The Degeadation of Laboe. 

302. Actual Production Compared with Productive 
Capability.— In a previous chapter (Chapter TV., 
Part 2), Ave considered the elements which enter 
into the productive capability of a community, and 
indicated, as the one most important question with 
which political economy has to deal, the inquiry, 
why it is that the actual production of any com- 
munity falls so far short of what its land power, its 
labor power, and its cajDital power are jointly com- 
petent to effect. 

It was there stated that only when we should 
have passed through all the departments of polit- 
ical economy should we be in a position to answer 
this question. 

303. Even under the title of Production, however, 
we saw that grave liability to loss of productive 
force inheres in the industrial structure of society, 
especially under the entrejpreneur system, by which 
the labor power and the cajDital power of the com- 
munity become subjected to the direction of a com- 
paratively small number of individuals, ''whose 
peculiarities of character, of habit, of station, 
seriously modify the application of capital and 
labor to production ; whose mistaken aims, whose 
erroneous impulses, may divert these forces from 



354 POLITICAL ECONOMY, 

tliat object ; whose accidents of fortune may impair 
the energy of the industrial movement or paralyze 
it altogether." 

Again, under the title of Exchange, we saw 
(Chapter YII. , Part 3) that still further and even 
more grave liabilities to loss of industrial force in- 
here in that commercial system which, by separat- 
ing producers and consumers, often by wide inter- 
vals, sometimes by half the circumference of the 
globe, introduces the opportunity for serious misun- 
derstandings between these two classes ; misunder- 
standings which, when intensified by panic, may at 
times result in a wide and long-continued suspension 
of productive activity. 

304. We are now to inquire respecting the reaction 
of Distribution upon Production. Is here a liability 
to a still further loss of productive force ? Discard- 
ing the terms just and unjust, or equitable and 
inequitable, as applied to the distribution of wealth, 
let us ask whether there is found, in a division of 
the product of industry according to certain pro- 
X:)ortions, between the several parties who have 
united in production, a sufficient cause for a smaller 
production of wealth in the future than would re- 
sult from a division of the same product between 
the same parties in different proportions ? 

The question we have just asked is one of great 
imjjortance, which has unfortunately been disre- 
garded by most economic writers. In a previous 
work^ I have, at considerable length, discussed this 
question. The limits of the present treatise will only 

'H The Wages Question, 1876, 



PBOD UCTION AND DI8TBIB UTION. 255 

allow the line of argument to be indicated in a very 
general way. 

305. It aijpears to me clear that, if any permanent 
economic injury is to be suffered through causes 
aifecting the distribution of wealth, there is far 
greater liability to such injury from causes acting 
in reduction of tbe wages of labor, than from causes 
which may tend to diminish the share of any other 
one of the claimants to the product of industry. 

We have not to look to a reduction of rents, unless 
effected by legal si^oliation or personal violence, as 
the probable cause of permanent economic loss to 
the community. The ownership of land is not 
likely to be made undesirable by the operation of 
any forces not acting in one or both of the two 
ways just indicated — so much does rent tend to ad- 
vance with the progress of society and the growth 
of wealth. The interest of capital, again, is, as we 
have seen (Par. 237), the reward of abstinence ; and 
a high rate of interest is, therefore, a strong in- 
ducement to the accumulation of capital, by which, 
in the result, production will be increased. Apart, 
however, from the constraints of law, it is difficult 
to see that the normal operation of the principle of 
demand and supply is likely to reduce the remunera- 
tion for the use of capital to the prejudice of future 
production. 

The State, indeed, may enter, as we shall see under 
a future title (Par. 351-354), so to restrict the pay- 
ing and receiving of interest as to w^ork an un- 
doubted and not inconsiderable economic injury. 
Grave, however, as are the j^ossible mischiefs of 
usury laws, so-called, I cannot believe that they 



256 POLITICAL ECONOMY. 

equal the mischiefs which may arise from sources 
hereafter to be indicated as affecting the wages of 
labor. 

306. It is the employer, as we have seen, the en- 
trepreneur, the captain of industry, who, on the one 
hand, borrowing capital and paying interest there- 
for ; on the other, hiring labor and paying its re- 
muneration under the name of wages, initiates, and, 
under the modern organization of industry, alone 
can initiate production. Since the employer's func- 
tion is all-important, and since his personal motive 
to production must be the securing of profits from 
his business, it is, of course, desirable, in the inter- 
est of the largest iDroduction of wealth, that those 
profits should not be reduced below the point which 
is necessary to secure the active, unremitting applica- 
tion of all the emj)loyer's powers and faculties. It is 
conceivable that the remuneration of the employer 
might be so trenched upon by legal restrictions, by 
taxes, by working men's strikes, by the influence of 
bad money, or by other causes, as to impair, or 
even to destroy, his individual interest in the pro- 
duction of wealth. And thus, again, we might have 
a division of the product of industry which should 
tend to a lower future production than would have 
resulted from a division of the product according to 
different proportions. 

It is, however, as I am constrained to believe, in 
causes acting in reduction of the wages of labor, that 
we find the largest possibility of economic injury. It 
is in this way that the reaction of distribution upon 
production is likely most seriously to impair the 
industrial capability of the community. 



REDUCTION OF WAGES, 257 

This is not the view commonly taken by the En- 
glish and American economists. Prof. Cairnes thus 
expresses himself respecting the consequences of a 
reduction of the rate of wages : " Sux3posinga.gToui3 
of employers to have succeeded, as no doubt would 
be perfectly jjossible for them, in temporarily forc- 
ing down wages, by combination in a i)articular 
trade, a j)ortion of their wealth j)i'eviously invested 
would now become free. How would it be em- 
ployed ? Unless we are to sui)i30se the character 
of a large section of the community to be suddenly 
changed in a leading attribute, the wealth so with- 
drawn from wages would, in the end, and before 
long, be restored to wages. The same motives wliich 
led to its investment would lead to its re-investment, 
and once re-invested, the interests of those concerned 
would cause it to be distributed amongst the several 
elements of capital in the same proportion as before. 
In this way covetousness is held in check by 
covetousness, and the desire for aggrandizement 
sets limits to its own gratification." And in a 
similar vein. Prof. Perry, of our own country, has 
said : " If in the division between profits and wages, 
at the end of any industrial cycle, profits get more 
than their due share, these very profits will wish to 
become capital, and will thus become a larger de- 
mand for labor^ and the next wages fund will be 
larger than the last." 

307. Had we already discussed the principles which 
govern the consumption of wealth, it would be easy 
to show that Professors Cairnes and Perry are mis- 
taken in their view of the necessary effects of an en- 
largement of profits at the expense of wages, inas- 



258 POLITICAL ECONOMY. 

much as a portion of sucli enhanced profits, instead 
of becoming capital (that is, wealth devoted to re- 
production), might become fine horses and houses, 
fine clothes and opera boxes ; while another portion 
might take the form of coming to the office one hour 
later in the morning and going home one hour earlier 
in the afternoon. 

But, ]3assing by, this point for the present, the en- 
tire argument by which the English and American 
economists generally have sought to establish what 
we may call "the economic indifference of the rate 
of profits," is still further defective, in that it 
neglects those very important considerations which 
relate to the possible degradation of labor ; that is 
the reduction of the laborer from a higher to a lower 
indusrrial grade. 

308. The constant imminence of this change, the 
smallness of the causes — often accidental in origin 
and temporary in duration — which may produce it, 
and the almost irreparable consequences of such a 
catastrophe, can hardly be set forth too strongly in 
treating of the distribution of wealth. 

The assumption which underlies the statements I 
have quoted is that the laboring classes, while suf- 
fering economic injury from any source, will them- 
selves remain firm in their industrial quality, and 
await the operation of the restorative and repara- 
tive forces which shall, in time, set them right. 
. The human fact, so often to be distinguished from 
the economic assumption, unmistakably is that there 
is on the part of the working classes, unless pro- 
tected in an unusual degree by political franchises, 
by the influence of public education, and by self- 



TEE DEGBADATIOW OF LABOR. 259 

respect and social ambition, a fatal facility in sub- 
mitting to industrial injuries, wliicli too often does 
not allow time for tlie operation of tlie beneficent 
principles of relief and restoration. The industrial 
o];)portunity comes around again, it may be, but it 
does not find the same man it left ; he is no longer 
capable of rendering the same service ; x^erhaps 
the wages he now receives are quite as much as he 
earns. 

309. Let us consider the possible effects of a con- 
siderable reduction of wages. If the amount pre- 
viously received had allowed comforts and luxuries, 
and left a margin for saving, the reduction would 
probably be resented, in the sense that x^opulation 
would be reduced by migration or by abstinence 
from propagation, until the former wages should be, 
if possible, restored. But if the previous wages 
had been barely suflacient to furnish the necessaries 
of life, and especially if the body of laborers were 
ignorant and unambitious, the falling off in the 
quantity and quality of food and clothing and in the 
convenience and healthfulness of the shelter enjoyed 
(see Pars. 42-6), would at once affect the efficiency 
of the individual laborer. 

With less food, which is the fuel of the human 
machine, less force would be generated ; with less 
clothing, more force would be wasted by cold ; with 
scantier and meaner quarters, fouler air and dimin- 
ished access to the light would prevent the food 
from being duly digested in the stomach and the 
blood from being duly oxydized in the lungs, would 
lower the general tone of the system and expose the 
subject increasingly to the ravages of disease. In 



260 POLITICAL BCO^OMY, 

all these ways tlie laborer would become less effi- 
cient, simply tlirougli the reduction of his wages. 

310. The economists assert that whatever 'is taken 
from wages will increase capital, and hence quicken 
employment, and that this, in turn, will heighten 
wages. But we see that it is possible that what is 
talien from wages no man shall gain ; it may be lost 
to the laborer and to the world. Now, so far as 
strictly economic forces are concerned, where enters 
the restorative principle? The employer is not 
getting excessive profits to be expended subsequently 
in wages ; the laborer is not under paid ; he earns 
now what he gets no better than he formerly did his 
higher wages. 

This image of the degraded laborer is not a fanci- 
ful one. There are in Europe great bodies of popu- 
lation which have come in just this way to be 
pauperized and brutalized, weakened and diseased 
by under- feeding and foul air, hopeless and lost to 
all self-respect, so that they can scarcely be said to 
desire any better condition, and still bringing 
children into the world to fill their miserable places 
in garrets and cellars, and in time in the wards of the 
workhouse. 

If such an injury as has been indicated may be 
suffered in respect to the physical powers of the 
laborer through the reduction of wages, quite as 
speedily may his usefulness be impaired through 
the moral effects of such a calamity. Just as the 
greatest possibilities of industrial efficiency lie in the 
creation of hopefulness, self-respect and social 
ambition, so the greatest possibilities of loss lie in 
the discouragement or destruction of these quali- 



THE DEGRADATION OF LABOR. 261 

ties. We have seen tlirougli what a scale the 
laborer may rise in his x>i'<^>oress to i3roductive 
power. By looking back, we see tlirongh what 
spaces it is possible he may fall under the force of 
purely industrial disasters. 

But we may at this point be called upon to meet 
an objection, founded upon the assumed sufficiency 
of the principle of self-interest. How, it may be 
asked, is it possible that employers shall fail to pay 
wages which will allow their laborers a liberal sus- 
tenance, if, indeed, it be for their own advantage to 
do so ; if, by that means, the economic efficiency of 
the laborers will be thereby increased ? 

I answer, first, that the assumption of the suffi- 
ciency of self interest to secure wise action is gro- 
tesquely wide of the miserable truth regarding 
human nature, to whatever department of activity 
we have reference. Mankind, always less than 
wise and too often foolish to the point of stui3idity, 
on the one hand, or of fanaticism on the other, 
whether in jjolitics or in domestic life, in hygiene or 
in religion, do not all at once become wise when 
industrial concerns are in question. 

The argument for feeding a hired laborer liberally, 
that he may work efficiently, applies with equal 
force to the maintenance of a slave ; yet we know 
too well that every where the lust of immediate gain 
has always despoiled the slave of a part, often a 
large part, of the food and clothing necessary to his 
highest efficiency. The same argument could ajDply, 
and apply with ^undiminished force, to the case of 
live-stock. Yet it is almost impossible, by any 
amount of preaching and teaching, by any number 



262 POLITICAL ECONOMY. 

of fairs and premiums, to keep a body of farmers up 
to the point of feeding cattle well and treating them 
well. The world over, the rule regarding the care of 
live-stock is niggardliness of expenditure, working 
deep and lasting prejudice to production. 

The foregoing would be a sufficient answer to the 
objection I have anticipated. On every hand we 
see true self-interest sacrificed to greed : why should 
it not be so in the case of the wages of hired labor ? 

But another and additional reason appears. It 
is that the employer has none of that security 
which the owner of stock or the master of a slave 
possesses, that what goes in food shall come back in 
work. A man buying an underfed slave or ox knows 
that when he shall have brought his property into 
good condition the advantage will all be his ; but the 
free laborer may at any time carry to another em- 
ployer whatever of bone and sinew and nervous 
energy he may have gained through liberal subsist- 
ence. There, as yet, is no law which gives the em- 
ployer compensation for "unexhausted improve- 
ments " in the person of his hired man. 



PART V. 
CONSUMPTION". 



CHAPTER I. 
Subsistence : Populatioit. 

311. What is Consumption ?— By the term consump- 
tion, in economics, we express the use made of 
wealth. This does not necessarily im]3ly the 
destruction of the form or material of the commod- 
ities so used, or even the exhaustion of the value 
which had at some time been imparted to them, 
although, in general, the use of wealth involves, in a 
greater or less degree, loss of substance and change 
of form, with a decline, rapid or slow, in that power 
in exchange which we call value. 

'' That almost all that is produced is destroyed, is 
true; but we cannot admit that it is produced for 
the purpose of being destroyed. It is produced for 
the purpose of being made use of. Its destruction 
is an incident to its use : not only not intended, but, 
as far as i^ossible, avoided." ^ That destruction 
may, in exceptional cases, be long postponed. 

*Prof. N. W. Senior. 



264 POLITICAL ECONOMY. 

Iron ore is consumed, i. e. , applied to the end in 
view in its production, when thrown into the fur- 
nace, and here takes place almost instantaneously 
not only a great chemical change, but a complete 
loss of form. The iron bar or plate is in turn con- 
sumed, when it is fitted into a bridge, without un- 
dergoing any chemical or mechanical change at the 
time, to be thereafter subject only to slow agencies 
of decay in the atmosphere, or to effects of attrition 
which, from one year to another, would be imper- 
ceptible. The bridge is consumed, that is, applied 
to the end in view in its production, when opened to 
trafiic. 

312. Consumption as a Department of Political Econ- 
omy,— Why should the economist interest himself, 
at all, in questions relating to consumption ? Why, 
having traced wealth through its production, distri- 
bution and exchange, should he not leave it in the 
hands of the consumer "^ without further inquiry, 
satisfied with its having reached the end for which 
it was created ? 

I answer : it is in the use made of the existing 
body of wealth that the wealth of the next genera- 
tion is determined. It matters far less for the 
future greatness of a nation what is the sum of its 



* The late Prof. Jevons, in the introduction to his ''Theory of 
Political Economy," after noting the close analogy to the science of 
Statical Mechanics, presented by the Theory of Economy proposed 
by him, significantly says : " But I believe that Dynamical branches 
of the science of Economy may remain to be developed, on the 
consideration of which I have not at all entered." Elsewhere Prof. 
Jevons says : " We, first of all, need a theory of the Consumption 
of Wealth." 



CLOTHmG AND SHELTER 265 

wealth to-day, wlietlier large or small, than what 
are the habits of its people in the daily consumption 
of that, wealth ; to what uses those means are de- 
voted, whether to ends which inspire social am.bi- 
tion, which restrict population within limits con- 
sistent with a high per- capita production, which 
increase the efficiency of the laborer and supply 
instrumentalities for rendering his labor still more 
productive, or to ends which allow the increase of 
population in the degree that of itself involves 
poverty, squalor and disease, which debauch the 
laborer morally and physically, striking at both his 
power and his disposition to work hard and con- 
tinuously, and which waste in idle or vicious in- 
dulgence wealth that should go into increase of 

capital. 

313. Subsistence.— The primary use of wealth is for 
subsistence. In the earliest stages of human society, 
man, like the lower animals, had only one want. 
Like the lower animals, he gathered his food, 
whether fish or flesh or nuts or berries, where he 
chanced to find it, and ate it without preparation. 
Long, however, before he began to cultivate food, 
even in the simplest way, he began to cook it. The 
discovery of fire and its application to the prepara- 
tion of food, is made by some writers upon primitive 
society to mark the boundary bet wen the purely 
savage ^^nd the barbarous condition. 

314. Clothing and Shelter.— At what stage in the 
evolution of the human kind, clothing and shelter, 
other than that furnished by the casual cave or by 
the foliage of the forest, became a requirement of 
the theretofore naked man, exposed unsheltered to 



^66 POLITICAL ECONOMY. 

tlie storm, we need not inquire. At moderate eleva- 
tions above tlie sea, tlirougliout the zone of tlie 
earth in which the human race probably originated, 
that requirement has never been very onerous, so 
far as the labor of construction or preparation is 
concerned. Food still remains, in those regions, the 
one great requirement of human existence. When, 
however, mankind spread over higher altitudes or 
zones further removed from the equator, the re- 
quirement of clothing, of shelter, and last of all, 
of fuel, came to be of increasing urgency and 
severity. 

Within certain limits, however, clothing, shelter 
and fuel are, in the higher latitudes, convertible, 
or interchangeable with food, in the human 
economy. One of the prime purposes of food being 
there the maintenance of the warmth of the body, 
that occasion may, in part, be served indifferently 
by a certain amount of food administered internally, 
or by clothing of a certain thickness apx3lied to the 
frame, or by the combustion of a certain amount 
of fuel in the open air or of a smaller amount within 
an inclosure. 

And here, as on the ten thousand occasions of a 
higher civilization, it is found that the greatest 
economy resides in the largest capitalization of 
labor. A dress of skins, which may have cost the 
effort of a week, will, during the time it lasts, more 
than replace, for purposes of warmth, food which 
would have required the efforts of many months. A 
hut which may have been a season in building, may 
save more in the food actually required for health 
and comfort, during the life time of the builder, than 



THE WIFE. 267 

could have been obtained by the hunting or the fish- 
ing of years. 

315. Let us suppose that, within some natural 
geographical division of the earth, the conditions of 
production are such that each adult male is able by 
steady labor to secure for himself considerably 
more, in the way of food, clothing, shelter, and fuel 
than is required for his own subsistence in health 
and strength to labor, and in physical comfort. The 
question we have now to ask is, what will these 
laborers do with the wealth they produce, after the 
strict needs of their own subsistence are met ; how 
will they consume it ? 

316. The Wife.— In the first instance, it may be 
assumed that each laborer will undertake the sup- 
port of one adult female, and this, not out of 
charity or compassion, not by the force of any legal 
arrangement, not with any reference to the contin- 
uance of the tribe or community, but in obedience 
to a natural personal instinct which is second only, 
in the demand it makes upon men, to the craving 
for food. The latter satisfied, the former asserts 
itself, irrepressibly, among all classes and conditions 
of men, in all states of human society. 

The woman with whose subsistence the laborer's 
income or annual production of wealth thus becomes 
charged, will, in a greater or kss degree, add to the 
means of the family thus formed. She will spin and 
weave, fashioning the fibrous materials which the 
man has gathered, into garments, blankets, and 
nets ; she will, in various ways, prepare the fiesh, 
the fish, or the vegetable food, which the head of 
the family supplies, rendering it more palatable, 



268 POLITICAL ECONOMY. 

more nutritions, more wholesome, or less perishable,' 
according to tlie nature of tlie subject matter ; she 
will bring water from the spring or brook ; she 
will keep the hut or tent in a certain order and 
decency. 

While, thus, the female, in an early stage of in- 
dustrial society, adds something to the family 
means, both by what she makes and by what she 
saves from waste, we may assume that, speaking 
broadly, she does not produce nearly as much as 
she consumes. JN'or is the contribution made by the 
wife to i^Q joint revenue of the family in any de- 
gree a determining cause of the formation of the 
family. That association would in general take 
place just as surely were the wife physically incapac- 
itated for making any such contribution, a suffi- 
cient reason being found in the natural instinct 
adverted to. 

We have, thus, the two earliest forms of the con- 
sumption of wealth, first, in the sustentation of the 
individual laborer, and secondly, in the maintenance 
of the wife, over and above her contribution, 
whatever that may be, to the joint support of the 
family. 

317. The Child.— N"ow, we have to note the third 
great form of consumption, in the order of nature. 
The association of husband and wife is followed, in 
the vast majority of cases, by offspring. The pro- 
portion of exceptional cases among laboring popula- 
tions is very small. We may, therefore, disregard 
these in our argument. 

The appearance of the child makes a new and im- 
perative demand upon the revenue of the family, 



TEE CHILD. 269 

wMcli is, witliin tlie limits of the father' s ability , 
met, in general, fully and even cheerfully. It is not 
in obedience to the requirements of law, or because 
of any patriotic desire to make good the numbers 
of the community, or to contribute to the strength 
of the state, that the father gives \x^ to his children 
all that margin of subsistence which, as a single 
man, or, though in a less degree, as a married man 
without children, he might have enjoyed. It is in 
obedience to a purely individual feeling, of an in- 
stinctive character, so generally planted in the 
human mind that, in spite of all instances of 
parental neglect or cruelty, we may speak of it as 
universal. 

318. Children in Excess.— Let us suppose that with 
three children, of various ages, the subsistence 
which can be provided by the head of the family 
is fully taken up. If, now, other children are to 
appear to claim a su^^port at the hands of the hus - 
band and father, what will be the result ? Clearly, 
a reduction in the standard of living. There will no 
longer be food, clothing, shelter and fuel adequate 
to maintain each and every member in health and 
strength, and without pain or discomfort resulting 
from dej)rivation of things needful. The new- 
comers will, indeed, under the impulse of the 
parental instinct, be admitted to an equal participa- 
tion in the family income ; but the share of each 
member of the family will be diminished. The 
pinch may come earliest and most severely at one 
point rather than another : food may be denied, or 
fuel, or clothing, or shelter, according to circum- 
stances ; butj in one way or another, something less 



270 POLITICAL ECONOMY. 

than what is necessary to maintain the members of 
the familj^ in health and strength and comfort, is 
snj)plied. 

319. The Effort of Nature to Restore Equilibrium.— 
Now let us, further, suppose this increase in the 
number of children beyond the limits of subsist- 
ence to have taken place uniformly throughout the 
tribe , occupying the geographical division assumed 
for the purjjoses of this discussion, but to have taken 
place once for all, from a x^urely transient cause. 
Will there be any effort of nature to restore the con- 
dition of general health, strength and comfort, or 
a,bsence of discomfort, which has been for the time 
lost through population trenching upon the limits of 
subsistence ? 

It is, indeed, true that nature will make an effort, 
but this will prove unequal to the work to be done. 
The history of a thousand tribes shows that there 
is not sufficient force in famine or disease to prevent 
the permanent reduction of a community, through 
excess of numbers, from a condition of physical 
well-being to one of inadequate subsistence with 
consequent impairment of vital force and labor 
power. 

320. Solidarity of the Family .—Of late years, with 
the growing interest in biological investigation, 
there has been manifested a disposition to glorify 
privation and famine, as agents in the uj)lif ting of 
the human condition, the doctrine of the " survival 
of the fittest" being api^lied to societies of men 
without due consideration of a most important 
difference existing between men and other sjjecies of 
animals. 



SOLIDARITY OF THE FAMILY. 271 

It is tlie solidarity of tlie family whicli prevents 
the law of the survival of the fittest from exerting 
that jiower in raising the standard of size and 
strength and functional vigor among men, which it 
exerts among animals generally. Throughout the 
animal kingdom, exclusive of man, the solidarity of 
the family exists, indeed, but to a limited extent 
only, and for a brief period. The mother protects 
and nourishes her offspring most sedulously and 
devotedly ; drains her life blood for its support, and 
will die in its defence ; but, in general, when the 
offspring is weaned the connection is broken ; the 
lives become separate ; the young one must there- 
after be its own provider and protector ; mother and 
child become competitors for food in the same field 
or forest ; may even tear and kill one another in 
the struggle for existence. Thus the principle of 
the survival of the fittest obtains leave to operate. 

321. With man, however, the conditions of the 
struggle for existence are greatly changed. Gener- 
ally speaking, that struggle is between families as 
units, not between individuals. Within the family, 
the young and old, the weak and the strong, male 
and female, are bound together by natural instincts 
which are too strong for pain, for hunger, for death 
itself. If want or famine pinch, all suffer together. 
If one member of the family fall sick, instead of 
being neglected, or even trampled, on, as among the 
lower orders of animals, he commands the tenderest 
care of all, while none has a right to any thing as 
against the sufferer. This, clearly, is not a condi- 
tion under which the j)rinciple of "the survival of 
the fittest" can operate among men, to raise the 



272 POLITICAL ECONOMY. 

Standard of size and strength and functional vigor. 
Instead of the natural elimination of the weakest 
and the worst, it is here the best who, from sexual or 
parental love, bare their breasts to receive the blows 
of fortune. 

We see, then, that the solidarity of the family, in 
the case of man, defeats that effort of nature which 
is so successfully made throughout the vegetable 
kingdom and throughout the animal kingdom ex- 
clusive of man, to restrict the members of any spe- 
cies within limits which are consistent with, ample 
nourishment and the full perfection of the type, and 
even to allow of the gradually progressive develop- 
ment of the species in the direction of greater size 
and strength and functional activity. On the con- 
trary, we may have, in the case of any tribe of men, 
a reduction effected abruptly or gradually in the con- 
ditions of subsistence, without any adequate effort 
of nature to resist the downward movement or to 
remedy the resulting injury to the vital force or the 
labor force of the country. 

322. The Capabilities of the Procreative Force.— We 
have thus far inquired respecting the effects of an 
increase of the number of children in any com- 
munity beyond the limits of subsistence, assuming 
for the moment the increase to be due to purely 
transient and adventitious causes. How is it as to 
the degree of activity and persistence in the pro- 
creative force, in the presence of a threatened reduc- 
tion in the standard of living below the point of 
health, strength and freedom from discomfort ? 

In his celebrated treatise on Population, Mr. 
Malthus assumed a birth rate sufficient to yield, in 



GEOMETRICAL INCREASE. 273 

spite of celibacy and exceptional sterility, in excess 
of four children to a family. There is reason to be- 
lieve that in any colony of European blood, planted 
on new land, of reasonably salubrious quality, 
within the temperate zone, this rate of increase 
would invariably be reached. That rate of repro- 
duction would be sufficient to secure an appreciable 
increase of each generation over the one preceding, 
were the facts of infant and of adult mortality but 
moderately favorable to the growth of population. 

323. Geometrical Progression.— ]N^ow, if we may 
assume for the members of successive generations an 
undiminished degree of fecundity, we have here all 
the conditions of a geometrical i^'ogression. And 
the possibilities of geometrical progression, when 
persisted in for a long time, become simply tremen- 
dous, whether in population, in wealth, or in any 
other direction. 

Thus, to take a series of ten terms we might 
have 

Arithmetical : 2, 4, 6, 8, 10, 12, 14, 16, 18, 20. 
Geometrical : 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024. 

These tremendous leaps in the geometrical series, 
are due to the fact that the increase between the first 
and second terms becomes itself the cause of a pro- 
portional increase between the second and third 
terms ; which increase, in turn, becomes the cause 
of corresponding increase between the third and 
the fourth, and so on to the end. 

324. Population Increases by Geometrical Progression. 
—Now it is according to this law that j)opulation 
increases ; and, as we said, the conseq^uences of a 



274 POLITICAL ECONOMY. 

persistence in a geometrical ratio, through a con- 
siderable period of time, are simply tremendous. 
"The elephant," says Mr. Darwin, "is reckoned 
the slowest breeder of all known animals, and I 
have taken some pains to estimate its probable 
minimum rate of natural increase. It will be safest 
to assume that it begins breeding when thirty years 
old, and goes on breeding till ninety years, bringing 
forth six young in the interval, and surviving till 
one hundred years old ; if this be so, after a period 
of from seven hundred and forty to seven hundred 
and fifty years, there would be alive nearly nine- 
teen million elephants descended from the first 
pair .^ " 

Man, though a slow breeder, as compared with 
many of the lower animals, has a rate of reproduc- 
tion far exceeding that of the elephant. Popula- 
tion has shown the capability, over a vast extent 
of territory, on more than one continent and through 
considerable periods of time, of doubling once in 
twenty-five years. With this capability we may 
say that if "neither evil, nor the fear of evil" 
checked the population of the United States, it 
would, in a century and a half, amount to three 
tliousand two hundred millions ! 

325. The Persistence of the Procreative rorce.— 
Such being the capabilities of the procreative force, 
when operating unrestrained, let us inquire what 
virtue there is in the fear of a reduction of the stand- 
ard of living below the point of health and physical 
comfort to check population at that line. 

It is commonly assumed, in discussions relating 
to wages, that the laboring class will more and more 



BEGKLES8 MULTIPLWATIOK ^75 

witWiold tlieir increase as the conditions of life 
become iiarder and harder ; and that any economic 
injuries which they may snifer, from whatever cause, 
will, in the order of nature, be in this way repaired. 
Instead of it being true, however, that the laboring 
class tend thus to resist and resent any lowering of 
the standard of subsistence, the fact is that never is 
the procreative force more active than when the con- 
ditions of life become meager and squalid ; when 
the reserve of the summer against the winter, and 
of the good year against the bad, is swept away 
by the clamorous necessities of to-day ; when alike 
enjoyment of the present and hope for the future are 
at their lowest point. 

Never had the marrying age been earlier, or 
christenings more frequent in Ireland, than when, 
just upon the verge of the great famine, Earl 
Devon's Commission, in 1844, thus described the 
condition of the peasantry; ''In many districts, 
their daily food is the potato ; their only beverage, 
water ; their cabins are seldom a protection against 
the weather ; a bed or a blanket is a rare luxury ; 
and, in nearly all, their pig and manure heap con- 
stitute their only property." 

The state of the population of India and China 
affords a conclusive proof that there is not suffi- 
cient virtue in economic forces to keep population 
above the plane of extreme misery, if once it fall 
below the plane of comfort and decency of living. 
On the contrary, a moral weakness or recklessness 
is induced which tends strongly and swiftly to carry 
population to the point of industrial distress. Then, 
indeed, famine makes its appearance, as periodically 



2% POLITtOAL EGONOMT. 

in India, "^ to set bounds to increase of numbers; 
but, for the reasons that have been stated, this force 
does not operate, as in the animal kingdom exclu- 
sive of man, to cut off only the least active, aggress- 
ive, intelligent, or self-reliant. The effect of famine, 
and of the diseases generated by famine, operating 
upon population across the barrier imx^osed by the 
solidarity of the family, is to lower the physical 
tone, to taint the blood, and weaken the will-x)ower 
of the entire industrial body, making it increasingly 
difficult, from generation to generation, to restore 
the lost conditions of economic well-being. 

* During the past 22 years there have been live periods of distress 
in India, reaching the pitch of famine. Formerly incessant vv^arskept 
down the population of India; but since British dominion has imposed 
peace upon its hundred tribes, famine has taken the place of war, in 
limiting population. 



CHAPTEU II. 

The Appeaeance of New Economic Waists. 

326. The Ascending Scale of Personal Consumption.— 
We have thus far dwelt on the effects of an increase 
of numbers beyond the limits of subsistence? as the 
latter are determined by the law of diminishing re- 
turns in agriculture. We have seen that, as the pro- 
creative force increases rather than diminishes in 
the face of poverty and squalor, there is no natural 
resting place for population, if once it passes below 
the plane of ample subsistence, until it reaches the 
point where it meets the ''positive checks" of 
famine and disease, and, it may be added, of war. 
This x>rinciple of population, to which we give the 
name, Malthusianism, was first clearly enunciated 
and fully illustrated by Mr. Malthus, in the last year 
of the last century. 

Let us now, retaining our assumi3tion that the 
point of "diminishing returns" in agriculture has 
already been reached, consider the relations of sub- 
sistence and population, on an ascending scale of 
X)ersonal consumx^tion. We have seen that i3opula- 
tion will go on increasing as fast and as far as food 
is provided to support it, all increase of wealth 
surely taking the form of an increase of numbers, 
unless other and more imperative demands are 
made upon the income of the family. But let us 



S78 POLITICAL EGONOMt. 

suppose that, at the point where a competent sub- 
sistence is provided to maintain the whole popula- 
tion in health and strength to labor, and in freedom 
from all discomfort resulting from privation of 
things absolutely necessary, the want of something 
beyond this comes to be strongly felt by the individ- 
ual members of the community. 

327. Diversity of Early Economic Desires.— What 
that want may be does not matter for the purposes 
of the present discussion ; and, indeed, it would not 
be likely to be the same in the case of all communi- 
ties. In one, the first want felt, after the absolute 
requirements for the support of life and laboring 
power are satisfied, is of ornament and decoration. 

In another community, the first want felt after 
the claims of immediate bare subsistence are met, 
is of a store for the future and a provision against 
the caprices of the seasons and the casualties of life. 

The first want emerging in the life of another com- 
munity may be of wealth to be expended in worshij) 
and in honor of the national or local deity. 

In still other communities, the new want may take 
the form of a love, no longer of ornament, but of 
comely dress, or of desire for a diversified diet, or of 
a taste for leisure, or of a craving for some costly 
drug or drink, like the opium of the East Indian 
and the Chinaman or the fire water of the North 
American Indian. 

328. Economic Wants Antagonize the Procreative 
Force.— But whatever be the passion or desire which 
is first developed in the mind of any community, it 
makes a demand upon the existing body of goods or 
upon the current production of wealth, which at 



nmTRAINT OF POPULATION. ^'J'9 

once antagonizes the strong and urgent disposition 
which has been indicated, to the consumption of 
wealth for the support of an increasing population. 
The newly awakened jjassion or desire can not be 
gratified out of the existing fund of wealth, unless 
the procreative force receive a check. 

Any economic want may act in restraint of popu- 
lation in one or more of three ways : lirst, by dimin- 
ishing the numbers of the marrying class, inducing 
celibacy among those who do not find the way to 
obtain an income adequate to the support of a 
family ; secondly, by procrastinating the period of 
marriage ; and, thirdly, by diminishing the birth- 
rate within the married state. 

If, for example, the number of married pairs in a 
given community were brought down from 100 to 
80, by the spread of celibacy ; if, through later mar- 
riages, the child-bearing period for each married 
pair were reduced from twenty years to fifteen, and 
if the interval between births were extended from 
two years to three, the number of children born 
under the latter state of things would be, to the 
number born under the former state, as 40 to 100. 

329. A Diversified Diet.-Whatever be the want 
most commonly felt, after the requirements of mere 
subsistence are met, there can, I think, be no ques- 
tion that the want which has been efficient on the 
largest scale, at once in promoting labor for its 
gratification, and in restricting the increase of popu- 
lation, is the craving for a diversified diet. Once let 
the traditional sole diet of the barbarian, be it fish, 
or flesh, or grain, be crossed with some other species 
of food, exciting thus the pleasure which resides in 



280 POLITICAL ECONOMY. 

variety, and an economic force has been introduced 
into tlie life of the community which, is capable of 
producing mighty results. 

A diversified diet, although doubtless it contrib- 
utes, in a degree, to health and vigor, is yet a pnre 
luxury, in the sense that it is never sought on the 
former account, but wholly because of the gratifica- 
tion of ap]3etite thereby secured. 

It will seem strange to those who have not studied 
the question of population, that an appetite for 
objects of pure luxury should be spoken of as 
having greater power to overcome the disposition to 
indolence and the disposition to excessive procrea- 
tion, than the fear of x^rivation and actual misery. 
Yet so it is ; and as we go up the scale of human 
wants and desires, as viewed by the moralist, we 
shall find that, in general, the higher the want or 
desire, ethically considered, the stronger it proves to 
be, until we see mere sentiments, involving no grati- 
fication to any bodily sense, impelling men to exer- 
tions the most painful and protracted, and holding 
sternly in check the most masterful passion of the 
human kind. 

330. Decencies.— Of a narrower range in its appli- 
cation to tribes and races of men than the desire of 
a diversified diet, but of far greater intensity and 
persistency within that range, is the desire of what 
we may call decencies, meaning thereby those things 
which are prescribed or required by the public 
opinion of the community. It is evident that the 
term decencies, in economics, must have a very 
various application to different communities and to 
different classes within the same community. 



TBS BmiUE OF DECENCIES. ^81 

'^The question whether a given commodity is to 
be considered as a decency or a luxnry, is obviously 
one to wliich no answer can be given, unless the 
place, the time and the rank of the individual using 
it be specified. The dress which in England was 
only decent a hundred years ago, would be almost 
extravagant now ; while the house and furniture 
which now would afford merely decent accommoda- 
tions to a gentleman, would then have been luxu- 
rious for a peer. 

"Shoes are necessaries to all the inhabitants of 
England. Our habits are such that there is not an 
individual whose health would not suffer from the 
want of them. To the lowest class of the inhabit- 
ants of Scotland they are luxuries. Custom enables 
them to go barefoot without inconvenience and with- 
out degradation. When a Scotchman rises from 
the lowest to the middling classes of society, they 
become to him decencies. He wears them to pre- 
serve, not his feet, but his station in life. To the 
highest class, who have been accustomed to them 
from infancy, they are as much necessaries as they 
are to all classes in England. 

"A carriage is a decency to a woman of fashion, a 
necessary to a physician, and a luxury to a trades- 
man. " 

331. The Desire of Decencies the Great Preventive 
Check to Population.— Whatever dignity the moralist 
may assign to the disposition to conform to the pre- 
vailing sentiments of the community, either by doing 
that which is prescribed by i^ublic opinion, or by 



* N. W. Senior. 



282 POLITICAL ECONOMY. 

shunning that which public opinion reprobates, the 
economist must recognize this as the most effective 
motive which operates to withstand the increase of 
population. 

"The great preventive check," says the wise 
economist but just now quoted, " is the fear 
of losing decencies." If by this is to be understood 
the check which is of greatest potency where it 
operates at all, the remark is perfectly just. But, 
in fact, it is only in a few communities that this cause 
operates with sufficient force to restrict population 
within the limits of the highest per-caj)ita produc- 
tion of wealth. 

In England, it has for generations been found 
adequate throughout the noble and wealthy classes ; 
but among the working classes reproduction has 
gone on with the least possible regard to its effect 
upon the standard of living. In France, on the other 
hand, even the peasantry are so fully alive to the 
inexpediency of a rapid multiplication, and are so 
temperate and prudent, that the excess of births 
over deaths has been reduced to a minimum. 
Doubtless the j)opular tenure of the soil in that 
country contributes directly and powerfully to this 
result. 

In the States of the American Union, the increase 
of population was, until recently, every where en- 
couraged by the fact that the country had not 
reached the condition bf diminishing returns, but, 
on the contrary, as is always the case before that 
condition is reached, foreign immigration and native 
growth in numbers alike added to the power and 
wealth of the several communities. Within the 



RESTRAINT OF POPULATION. 283 

past twenty-five years, tlie rate of natural increase 
in the Northeastern States has encountered a de- 
cided check, due to a rising standard of living in 
communities whose productive capabilities were 
already well developed ; and, were it not for the 
newly-arrived foreign residents, the annual excess 
of births over deaths in this section would be but 
slie:ht 



CHAPTER III. 

Ceetain" Views of the Consumption of 
Wealth. 

332. Cheap vs. Dear Food.— We liave, thus far, 
spoken of economic wants, mainly in their effects 
as retarding the increase of numbers. Until an ade- 
quate check, of a sufficiently persistent character, 
has been secured here, the economist who fully ap- 
preciates the consequences of over-population can 
hardly fail to recognize almost any economic want, 
whatever its origin or its object, and however 
little either may be apj)roved by the moralist or phy- 
siologist, as being better than none. 

It has been from this point of view, that the En- 
glish writers have insisted so strongly that cheap 
food, which one would surely think an economist 
would approve, as leaving means for expenditures of 
a higher character, is, on the contrary, a thing to be 
deprecated. 

Thus Mr. J. H. McCulloch says; "When the 
standard of natural or necessary wages is high — 
when wheat and beef, for example, form the prin- 
cipal part of the food of the laborer, and porter and 
beer the principal part of his drink, he can bear to 
retrench in a season of scarcity. Such a man has 
room to fall ; he can resort to cheaper sorts of food 



CHEAP OR DEAR FOOD? 285 

— to barley, oats, rice and potatoes. But he who is 
habitually fed on the cheapest food has nothing to 
resort to, when deprived of it. Laborers placed in 
this situation are absolutely cut off from every re- 
source. You can take from an Englishman ; but 
you cannot take from an Irishman. The latter is 
already so low, he can fall no lower ; he is placed 
on the very verge of existence ; his wages, being reg- 
ulated by the price of potatoes, will not buy wheat, 
or barley, or oats ; and whenever, therefore, the sup- 
ply of potatoes fails, it is. next to impossible that he 
should escape falling a sacrifice to famine." 

333. Better Things than Dear Food.— Clearly, the 
basis of this reasoning is the Malthusian doctrine. 
These economists recognize the strong probability, 
the almost certainty, that a people will carry their 
increase closely up to the limits of subsistence 
according to the kind of food they use, whatever 
that may be. 

But suppose we have a community which will 
accept the opportunity of living uj)on cheap food, 
and apply the saving in annual consumption, which 
is effected thereby, to the permanent enlargement of 
their capital, or to other forms of enjoyment, to 
dress, to better lodgings, to luxuries, jDerhaps to ex- 
penditures upon education and culture, what harm, 
then, would Mr. McCulloch find in cheap food, be it 
potatoes, or rice, or the Indian corn of America 1 
Surely none. 

Let me not be understood as quarreling with this 
potato philosophy of wages, so far as the assumption 
which underlies it is justified by the facts of human 
society, as it very widely is. I only claim that in 



286 POLITICAL ECONOMY, 

any country whose people had shown the capability 
of setting bounds to the increase of population by 
the exercise of their own judgment and will, instead 
of allowing those bounds to be set by privation and 
disease alone, cheap food w^ould become a means of 
increasing the comfort and luxuries enjoyed by that 
people in other directions of expenditure. 

334 . The Claim in Behalf of Government Expenditure. 
— On the part of many, perhai3S most, persons who 
favor large government expenditures, the actuating 
motive is found in the opinion hereafter to be dealt 
with, that wasteful and even destructive consump- 
tion '' makes trade good," *' encourages industry," 
"raises wages," &c. Something which is at least 
less obviously false than this must be intended in 
the proposition laid down by more than one econo- 
mist of reputation, that government expenditures, 
within moderate limits, are industrially beneficial. 

This view may be stated in the language of Mr. 
McCulloch, one of the most careful of the English 
economists of the last generation : — 

" A moderate increase of taxation has the same 
effect on the habits and industry of a nation that an 
increase of his family or of his necessary and un- 
avoidable expenses has upon a private individual. 
To the desire of rising in the world, inherent in the 
breast of every individual, an increase of taxation 
superadds the fear of being cast down to a lower 
station, of being deprived of conveniences and grati- 
fications which habit has rendered almost indisx)ens- 
able ; and the combined influence of the two prin- 
ciples produces effects that could not be produced 
by the unassisted agency of either. They stimulate 



GOVERNMENT EXPENDITURE. 287 

individuals to endeavor, by increased industry and 
economy, to repair tlie breach taxation lias made in 
their fortunes ; and it not infrequently haj^jpens that 
their efforts do more than this, and that, conse- 
quently, the national wealth is increased through 
increase of taxation. 

" But we must be on our guard against an abuse 
of this doctrine. To render an increase of taxation 
productive of greater exertions, economy and inven- 
tion, it should be slowly and gradually brought 
about, and it should never be carried to such a 
height as to incaj)acitate individuals from making 
the sacrifices it imposes by such an increase of in- 
dustry and economy as it may be in their power to 
make, without requiring any very violent change in 
their habits." 

335. An Instance in Point.— Such is the claim in 
behalf of government expenditure. What is to be 
said of it % Let us proceed by way of an exami3le. 
Let US take a large population spread over a vast 
extent of country, like India, which possesses almost 
illimitable facilities for the improvement of the soil 
through irrigation, and whose broad spaces demand 
numerous and extensive lines of artihcial communi- 
cation, by canal or railway. Let it be supposed 
that the people occupying this country are what the 
j)eople of India now are, in numbers, in character, in 
habits of living and of working, continually tending 
to increase up to the limits of subsistence, even 
to the very verge of famine ; not only accumulating 
no capital, but laying by no store for future wants ; 
having neither the genius for organization nor the 
capacity for self-denial which would be required to 



288 POLITICAL ECONOMY. 

initiate tlie simplest local improvements, not to 
speak of vast systems of transportation or irrigation. 

JN'ow, we may imagine such, a population to be 
ruled by a benevolent, disinterested despot of tli-e 
highest order of intelligence, a Napoleon devoted to 
the arts of peace. We may imagine this ruler, by a 
system of taxation that shall be as just between 
individuals and as judicious in its seasons and 
methods as human wisdom can make it, first, draw- 
ing from the crops of good years a store against the 
occurrence of bad harvests ; then, by a gradually 
increasing stringency of exaction, adding to the cost 
of living in such a w^ay as to discourage the rapid 
growth of j)opulation, while applying the proceeds 
of all taxes to great public improvements which 
enable the food supply of the empire to be readily 
equalized in the event of local scarcity, which guard 
the crops against the effects of periodic droughts ; 
which afford rapid and cheap passage to the prod- 
ucts of inland districts and allow the labor of men 
and bullocks, once devoted to a tedious and costly 
transx^ortation of materials, to be applied to the 
multiplication of the materials themselves, be they 
materials for food, or clothing, or shelter. 

And as the productive power of the country in- 
creased under such an administration, we can im- 
agine the high-minded ruler, intent on his benevo- 
lent purpose, still drawing away from the people, 
by taxation, all the surplus above the necessary cost 
of subsistence for the present population, which 
might otherwise be apj)]ied to the increase of poj)u- 
lation, and, with the means thus acquired, providing 
capital in its various forms for the use of the frugal 



QO VERNMENT EXPENDITURE. 289 

and the temperate, perfecting communications, pro- 
tecting the health and lives of his subjects by sani- 
tary arrangements, and, at last, undertaking the 
elementary education of the whole body of the 
people, by instruction both in letters and in the me- 
chanic arts. 

All this, it is clear, an absolute ruler of the charac- 
ter indicated might do for liis people ; * and not a 
little of this many a benevolent and able ruler has 
done for his people. The ''forced frugality," to 
use Bentham's phrase, which his taxes have im- 
posed, has at once repressed population and stimu- 
lated industry among the existing body of laborers : 
while the wise expenditure, upon x^ublic works and 
in public education, of the vast sums thus brought 
into the treasury, has sown the seed from which has 
sprung many a golden harvest. 

336. Danger of Abuse and Waste in Government 



'^Tliis is, in fact, involved in the theory of the British administra- 
tion of India : the reasons are well stated in the following paragraph 
fj-om the Times of 1879. 

•' In England the remission of taxation is urged with great force, 
because, it is said that taxes remitted will fructify in the pockets of 
the people. No result of this kind can be expected in India. If the 
conditions of living are made easier there, as they would be by a re- 
mission of taxes, the consequences would not be an improvement in 
thew^ell-beiug of the people, but an increase of their numbers. Our 
duty, therefore, as guardians and governors of the people, charged 
with the responsibility of keeping alive in times of famine a vnst 
population with no reserved resources of its own, is to save for those 
who do not save for themselves, to keep a margin of income over 
expenditure so that we may have in hand a fund upon which to draw 
in the recurrent periods of distress. This is a leading principle in 
Indian finance. Whoever forgets this neglects the primary duty c,l 
an Indian Administrator." 



290 POLITICAL ECONOMY. 

Expenditure.— But wliile we see, thus, what an ideal 
monarch might do for a people indolent, unambi- 
tious, sensual ; we are forced also to remember how 
large a part of the wealth raised by taxation, even 
under governments no worse than the average, has, 
in all ages, been spent in war, pomp and folly ; how 
strong is the temptation to extravagance and even 
to corruption in all governmental expenditure ; how 
much of wdiat the people pay the treasury does not 
receive ; how much of what the treasury disburses, 
even in seeking truly productive ends, does not 
reach its intended object. 

Yet it is possible that this feeling may be carried 
too far. When one contrasts the highways, the 
bridges, the streets, the harbors, the break- waters, 
the light- houses, and other aids to transportation 
and commerce, which government provides, with 
the best that could reasonably be looked for from 
individual or associated effort, without the taxing 
power ; when one contrasts the system of public 
education in the most backward of our Northern 
States with the best that voluntary contributions or 
private munificence ever supplied ; when one con- 
trasts the sanitary arrangements for supjjlying pure 
air and pure water to our crowded cities with the 
condition of things which exists where these matters 
are left to unofficial action, he will, if intelligent and 
candid, find occasion to qualify in no small degree 
his assent to the x)roi3osition that, under a well- 
ordered constitution, government is only a police- 
man, to keep people from breaking each other's 
heads or picking each other' s pockets. 

337. Two Popular Fallacies Concerning Consump- 



"OVER-PRODUCTION':' 291 

tion.— In a preceding chapter,^ we discussed the 
question, liow it is that there can. be at any time, 
abounding natural resources, unemployed labor 
power, unemployed capital power, no lack of dispo- 
sition on the part of the owners of capital to secure 
a return from the productive use of their prox)erty, 
no lack of disposition on the part of laborers to earn 
wages by work, and yet an enforced idleness with 
resulting poverty and squalor. Two pojDular expla- 
nations of this condition of things are always sure 
to be offered during the continuance of ''hard 
times," one of which finds its expression in the 
sounding phrase " over-production," while the 
other emphasizes its supposed antagonism to the 
theory of the over-productionists, by the use of the 
term " under-consumption." 

A brief reference to the conditions under which 
wealth is produced, will suflfice to show that, like all 
condensed phrases, each of these large words signi- 
fies more than one thing ; that, in certain senses, 
each j)hrase embodies a great deal of arrant non- 
sense ; that, taken otherwise, each embodies a vital 
truth ; and, finally, that, so far as either means 
any thing at all, that meaning is exactly identical 
with what is expressed by the other. 

338. Over-production.— All producers are also con- 
sumers. Men produce only because they desire to 
consume. They produce only so much as they de- 
sire to consume. It is true that any given producer 
may desire to realize his enjoyment either now, or at 
a future time ; either in satisfying his own personal 

* Paragraphs 195-201. 



292 POLITICAL ECONOMY. 

wants and ai)petites, or in satisfying those of 
friends, children or beneficiaries. But the instan- 
ces of deferred enjoyment may be trusted to average 
themselves from year to year, and from generation 
to generation. 

The idea of over-production, therefore, involves 
the absurdity of supposing that men will labor to 
produce that which they have not the desire to 
consume. 

But passing over this initial absurdity, we observe 
in the use of this phrase, a vague notion that the 
amount of necessaries, comforts and luxuries which 
a community, at any given stage of its progress, is 
IDrepared to consume is a definite amount ; and that 
if the amount produced is somewhat rajDidly in- 
creased, the capacity for consumption will be out- 
run, and men will stand, without appetite, before a 
mass of good things, for which they know no uses 
and with which they are, for the time, utterly at a 
loss to deal. 

The fallacy of this will sufficiently appear if we 
ask, not who are the men able and willing to make 
away with a vastly greater body of wealth than 
they find themselves in possession of, but who are 
the men who would not be found willing and able 
to do this ? Is there any laborer or mechanic re- 
ceiving wages to the amount of $300 or $500 a year, 
who could not, and would not gladly, spend $600 or 
$1,000? Is there any merchant or professional man 
or man of leisure, with an income of $3,000 or $5,000, 
or $10,000, who could not easily give account of an 
income of $6,000, or $10,000, or $20,000? What 
with houses and horses, clothes, equipage, and 



" undeb-consumption:* 293 

travel, costly viands and drinks, any civilized com- 
munity could instantly double, quadruple, or dec- 
uple its consumption of wealth, were the wealth 
provided. 

339. Under-consiimption. — In like manner, the 
phrase, under- consumption, involves an initial ab- 
surdity, when applied in explanation of so-called 
" hard times." Thus, during the period of 1876-9, 
it was said that the people of the United States were 
suffering from under-consumption ; yet, not for a long 
]period, if ever, had consumption folio sved so qviickly 
upon x)roduction ; had the food earned been so 
quickly eaten ; had the margin of saving been so 
small, as during the years referred to. A strange 
term, truly, to apply to such a condition : this 
ander-consumption ! 

But i3assing by this initial absurdity, we find that 
beneath the phrase, under-consumption, lurks the 
notion that, somehow or other, wealth when once 
produced is in danger of getting in the way, so that 
other wealth cannot be produced until this be first 
eaten or drunk or burned up, or by some means 
gotten rid of. As a matter of fact, there has never 
been any accumulation of wealth on the earth's sur- 
face so great as to im]3ede the further production 
of wealth, and there is not* likel}^ to be. Were men 
willing to produce wealth without consuming it, 
they could go on forever without encountering any 
obstacle through the failure of consumption. Of 
course, men will not, in general, produce more than 
they desire, sooner or later, to consume ; but human 
appetites are not so weak that consumption may 
iiot safely be left to take care of itself. But the 



294 POLITICAL ECONOMY. 

disposition of men to labor is not so strong and con- 
stant that no anxiety need be felt respecting the 
production of wealth. 

340. Over-prodnction and nnder-consumption 
mean the same thing, and that is under-production. 
This is, of course, a mere jangle of words, until the 
phrases are qualified as they should be. Over- 
production, as alleged by those who would explain 
hard times, is partial over -production^ production, 
that is, which has gone on in certain lines, generally 
under speculative impulses, until it has exceeded 
the normal, or even, possibly, a highly stimulated 
demand. This excess of supply in certain lines 
leads to the accumulation of vast stocks of unsalable 
goods, which is partial under -consumption^ these 
stocks melting slowly away through a period extend- 
ing over months, it may be, years. Meanwhile, 
general under-production is the result. The bodies 
of labor and capital which have been called into 
the over-done branches of industry, cannot readily, 
if at all, be transferred to other branches ; they re- 
main where they are, half employed, waiting for 
the renewal of demand. In the dreary interval, pro- 
ducing little, they have little with which to purchase 
the products of others, and these are consequently 
compelled to restrict their own production propor- 
tionally, as was shown in pars. 199-200. 

In this way it is we vindicate our paradox that 
over-production means nothing more or less than 
under-production. There is no over-production pos- 
sible, except a partial over-production, an over- 
production in certain lines, which inevitably involves 
a lowering of the scale of production as a whole : 



DESTRUCTION OF WEALTB. 295 

that is, partial over-production involves general 
under-production. 

It is under production, not over production or 
under-consumption, whicli makes hard times. 

Over-production, general over-production, is im- 
possible, and, were ifc to occur, were the creation of 
wealth to outrun men's capacity to consume, no one 
would be injured thereby. But under-production 
is an unmistakable evil. It means less wealth pro- 
duced, and consequently fewer of the comforts and 
necessaries of life, on the average, to each member 
of the community. To large classes it means hunger, 
cold and squalor ; debility, sickness and premature 
death. 

341. The Destruction ofWealth.— We have already 
adverted to the fact of the extensive destruction of 
wealth, by accident or by natural causes, as afford- 
ing an explanation, in i^art, of the comjparatively 
slow progress of accumulation, even in the states 
whose land power, labor power and capital power 
are greatest. We have now to deal with the same 
fact, in our theory of consumption. 

A stubborn belief appears among the non-agricul- 
tural masses of every community where wages or 
labor or wealth is a toj)ic of familiar discussion, to 
the effect that the destrnction of wealth in some way 
increases j)i'oduction. Laboring people generally 
hold to this ; our servants believe it religiously, and 
justify themselves, secretly or openly, for all their 
breakage and wastage by the i:)lea that it ' ' makes 
trade good." Even cultivated jjersons are not free 
from an instinctive feeling that the abrupt removal 
of the existing body of wealth quickens industrial 



296 POLITICAL ECONOMY. 

activity and promotes the general welfare, tliough. 
it may be at the cost, for the time, of individuals. 

Frederic Bastiat, in one of his capital little essays, 
has dealt with this notion so cleverly that there can 
be no excuse for any writer using his own phrases on 
this theme. 

342. The Broken Pane.— " Have you ever had occa- 
sion to witness the fury of the honest burgess, 
Jacques Bonhomme, when his scapegrace son had 
broken a pane of glass? If you have, you cannot 
fail to have observed that nil the bystanders, were 
there thirty of them, lay their heads together to 
offer the unfortunate proprietor this never-failing 
consolation, that there is good in every misfortune, 
and that such accidents give a fillip to trade. 
Every body must live. If no windows were broken, 
what would become of the glaziers ? Now, this 
formula of condolence contains a theory which it is 
proper to lay hold of in this very simple case, because 
it is exactly the same theory which unfortunately 
governs the greater part of our economic institu- 
tions. 

" Assuming that it becomes necessary to expend 
six francs in repairing the damage, if you mean 
to say that the accident brings in six francs to the 
glazier, and to that extent encourages his trade, I 
grant it fairly and frankly, and allow that you reason 
justly. 

''The glazier arrives, does his work, pockets his 
money, rubs his hands, and blesses the scapegrace 
son. This is what we see. 

" But if, by way of deduction, you come to con- 
clude, as is too often done, that it is a good thing to 



DESTRUCTION OF WEALTH. 297 

break wifidows — that it makes money circulate — and 
that encouragement to trade in general is the result, 
I am obliged to cry, halt! Your theory stops at 
what we see, and takes no account of lohat we don't 
see. 

"We don't see that since our burgess has been 
obliged to" spend his six francs on one thing, he can 
no longer spend them on another. 

" We don't see that if he had not this pane to re- 
place, he would have replaced, for example, his 
shoes, which are down at the heels ; or have placed 
a new book on his shelf. In short, lie would have 
emiDloyed his six francs in a way in which he can- 
not now emjDloy them. Let us see, then, how 
tlie account stands with trade in general. The 
pane being broken, the glazier's trade is benefited 
to the extent of six francs. This is loliat we see. 

"If the pane had not been broken, the shoe- 
maker's or some other trade would have been encour- 
aged to the extent of six francs. This is what we 
dovbt see.'''' 

343. Destruction Sometimes the Removal of Obstruc- 
tion.— It is, of course, possible to conceive a situa- 
tion where the destruction of wealth may have the 
direct effect to secure a larger production of wealth. 
Thus, a man may occupy a certain water privilege 
with an antiquated mill, which he can not make up 
his mind to tear down. To destroy the mill seems 
to him like waste, or, even if he appreciates the fact 
that the erection of a new and more commodious 
mill, with modern appliances, on the site, would be 
true economy, he cannot bring himself to incur the 
initial expense just at this time ; he procrastinates 



^98 POLITICAL ECONOMY. 

in the matter, and so perhaps goes on, year after 
year, cramped in his operations, perhaps unable 
even to undertake production in certain lines for 
which there is an advantageous opening. Now, 
in such a case it might happen that the burning 
down of the old mill would lead to the immediate 
erection of a new one which would pay for itself 
in a short time, and the net result, thereafter, be 
the substitution of a powerful and efficient agent 
of production for one that was inadequate and 
outworn. 

Undoubtedly, too, the destruction by fire of the 
old and crooked parts of certain cities, filled with 
rookeries and tumble-down houses, almost impassa- 
ble to traffic and repulsive of aspect, has led to an 
actual increase of wealth within a short time there- 
after. The quarter destroyed may have been long a 
nuisance and an obstruction to the growth of the 
city and the development of its trade ; but the iner- 
tia of property owners, their blindness to their large, 
their permanent interests, their indisposition, either 
from apprehension or avarice, to make large capital 
expenditures, and especially the fact that it was of 
no use for a single property owner to try to improve 
the quarter by tearing down his rookeries and build- 
ing handsome and commodious structures, so long 
as the general character of the neighborhood re- 
mained what it had been, these causes might have 
long withstood the needed improvements. The fire 
comes, resolves all doubts, burns up in an hour the 
accumulated foulness of hundreds of years, leaves 
the ground open to building, and six months or a 
year thereafter, a new and elegant quarter has arisen 



DESTRUCTION OF WEALTB. 299 

from the ashes. Not all, not by any means the 
larger x)art, of this represents the i)roduction of 
wealth in the interval. By far the greater share 
rex)resents the transi^lanting to this si)ot of wealth 
previously existing. Yet, in addition, there may, 
as we said, conceivabl}^ have been a large creation of 
values due to the improvement of commercial sites 
and commercial avenues heretofore neglected. 

Such instances of the destruction of wealth lead- 
ing to a larger production are comparatively rare. 
In the vast majority of cases, that destruction, how- 
ever rejoiced over by shallow persons who are in- 
fluenced only by ''what they see," or by selfish 
persons who secure an immediate individual advan- 
tage from the loss of others, wdiich is also a xoublic 
loss, is a misfortune which is properly only the sub- 
ject of regret. 



CHAPTER IV. 

CoiTSUMPTIOlSr THE DYNAMICS OF WEALTH : RE- 
ACTION OF Consumption upon Production. 

344. We have examined several of the theories 
most prevalent regarding the consumption of wealth, 
some of them held by economists of reputation, 
others held only by the ignorant or the thought- 
less. 

We saw that what I have ventured to call the 
potato-philosophy of wages, by which dear food is 
made, strangely enough, to be a condition most 
beneficial to the laboring classes, is only justified 
upon the assumption that, excepting small and un- 
elastic expenditures for clothing and shelter, nothing 
is indispensable or ''necessary" to the working-man 
except his food ; that this food will consist, practi- 
cally, of a single staple article, the cost of which 
thus comes to determine the entire expenditure ; 
and, hence, that if this staple article be cheapened, 
the laboring class will be left in the position indi- 
cated by Mr. McCulloch (Par. 332), always on the 
verge of famine. 

But we in the United States know that a cheap 
staple article, like Indian corn, may be compatible 
with a lavish expenditure on garnishes, fruits, con- 



CERTAIN THEORIES OF CONS UMPTION 301 

diments, relishes and drinks ; "^ secondly, that a 
great many things may become indispensable to the 
working classes beyond their food ; that decent and 
comfortable homes, with yards and gardens, school - 
honses and churches, may be made just as " neces- 
sary'' as food and drink; that in such a commu- 
nity, parents will gladly deny themselves the wages 
their children might earn, in order to send them to 
school, and the husband gladly deny himself the 
wages the wife might earn, in order that she may 
"keep the house." 

Not only may individual desires continually mnl- 
tiply among a people, where political freedom and 
social ambition exist, but as they multiply they 
should also intensify. The higher the industrial 
desires rise, the more tenacious they become. 
Tastes are not only more costly than appetites, but 
they are far stronger. 

345. Again, we considered the plea in behalf of 
governmental expenditures as constituting a desir- 
able form of consumption. We saw that govern- 
ment may undertake vast works of construction, or 
services vitally imxDortant to the security of life and 
property, to which the abilities and the resources of 
individuals might be utterly inadequate. We saw 
no reason for attributing to such expenditures by 
government any different economic character or 
effects than would belong to equal expenditures by 
individuals who might have the power and the 

*Many an American mechanic spends as much for milk, butter 
and eggs, alone, as he does for flour and meal ; and as much more, 
still, for tea, coffee and su^ar, 



303 POLITICAL ECONOMY. 

disposition to construct the same works and perform 
the same services. 

We saw, however, that certain sound thinkers, 
like McCulloch and Bentham, attribute a possible 
economic virtue to expenditures made by govern- 
ment, for purposes, not such as individuals could 
not compass, but such as individuals, from lack of 
industrial or social ambition, of self-denial, or fore- 
thought, would not undertake. We saw that there 
is a modicum of truth in this view of governmental 
expenditure, upon its underlying assumption, viz., 
that individuals will not, for themselves, expend 
wealth wisely ; but we saw nothing which need 
qualify the objections raised to unnecessary govern- 
mental expenditure among any people wdio are 
only moderately well qualified to judge of their own 
interests, and are only moderately disposed to exer- 
cise abstinence and self-control for the sake of the 
future. 

346. Again, we considered certain popular and 
more or less fallacious notions regarding the rela- 
tions existing between the use of present wealth and 
the creation of new wealth. We saw that some 
persons, who are often persons of general intelli- 
gence, hold that, in order there may be as much 
wealth as possible to be enjoyed, great pains should 
betaken against an ^'over-production" of wealth, 
an excess of food, clothing, fuel, and other necessa- 
ries, comforts and luxuries of life appearing to these 
persons to be the proper subject of continual appre- 
hension. While, thus, on the one hand, some fear 
that too much wealth will be ]3roduced, others fear 
lest the wealth that exists shall be too slowly made 



THE DYNAMICS OF WEALTH. 303 

away with. Under-consumption is tlie economic 
bugbear of these persons. Wealth is, in their view, 
not so much of a good but that it is desirable it 
should be caused to disappear as rapidly and as 
completely as pjossible. They have a notion that 
wealth, once produced, some how or other gets in 
the way of the production of new w^ealth ; and that 
it is all-important that it should be eaten uj), or 
drank uj), or worn out, or otherwise disposed of : the 
sooner the better. It matters less how wealth shall 
be consumed, than when. Any form of consump- 
tion is better than a slow consumption. That is the 
most advantageous of all, which is the most rapid 
possible. 

We saw, also, that many persons, not all of the 
most ignorant class, go a step beyond this, holding 
that if wealth cannot be consumed fast enough, it 
should be destroyed. These persons look to fire 
and flood to "make trade good." They find too 
many things upon this earth which are adapted to 
give X3leasure and soothe pain, to increase the 
230wer of man over matter and the elemental forces, 
to prolong life, to instruct, civilize and refine. They 
may not be able to present an argument in favor of 
their view of the subject, but they know, by the 
way they feel, that a conflagration, or an inundation, 
or a protracted war, really does promote human well- 
being. Of that they are sure. 

347. If we have dealt sufiiciently with the foregoing 
notions regarding consumption, w^e have reached the 
point where we may hope to find the true Dynamics 
of Wealth. 

I have said that, as a means of checking the in- 



304 POLITICAL ECONOMY. 

crease of numbers, which would otherwise surely 
carry population to the point of misery, famine and 
pestilence, the appearance of almost any economic 
want must be greeted by the economist as an econo- 
mic good, without much regard to the origin or 
object of that want. But the moment the capability 
of the self -limitation of population is assured, tlie 
economist discovers wide differences between the 
various demands for the consumption of the existing 
body of wealth, made by the differing appetites and 
desires of different communities, or of different 
classes in the same community. 

It is in the reaction of Consumption upon Pro- 
duction that we reach at last the chief cause of that 
great falling off of actual production from productive 
capability, of which we found a partial explanation 
under preceding titles of this work.^ When we re- 
member that the expenditure of the people of Great 
Britain, annually, for alcoholic beverages reaches 
the enormous sum of $900,000,000 ; and when we re- 
member that this enormous expenditure, which is 
more than ten-fold the sums devoted to elementary 
education throughout the kingdom, is but one of 
many forms of consuming wealth which not only 
have no effect to increase subsequent produc- 
tion, but have a direct and positive influence to 
diminish the disposition and the power to labor, 
we get a rude measure of the force which a con- 
sumption of wealth directed towards different ends 
might introduce into the economic life of that 
country. 

* Chap. IV., Part 2; Chap. VIL, Part 3; Chap. VII., Part 4. 



THE DYNAMICS OF WEALTH. 305 

It is here we find the body of economic litera- 
ture most deficient. We need a new Adam Smitli, 
or anotlier Hume, to write the economics of con- 
sumption in which would be found the real Dyna- 
mics of Wealth,^ to trace to their effects u];)on pro- 
duction the forces which are set in motion by the 
uses made of wealth ; to show how certain forms of 
consumption clear the mind, strengthen the hand 
and elevate the aims of the individual economic 
agent, while promoting that social order and mutual 
confidence which are favorable conditions for the 
complete development and harmonious action of the 
industrial system ; how other forms of consumption 
debase and debauch man, as an economic agent, and 
introduce disorder and waste into the complicated 
mechanism of the productive agencies. Here is the 
opportunity for some great moral philosopher, 
strictly confining himself to the study of the econo- 
mic eifects of these causes, peremptorily denying 
himself all regard to purely ethical, political, or 
theological considerations, to write what shall be the 
most important chapter of political economy, now 
almost a blank. 

* The late Prof. Jevons, in the introduction to his "Theory of 
PoHtical Economy," after noting the close analogy to the science of 
Statical mechanics, presented by the Theory of Economy proposed 
by him, significantly says : " But I believe that Dynamical branches 
of the science of Economy may remain to be developed, on the con- 
sideration of which I have not at all entered." Elsewhere Prof. 
Jevons says : "We, first of all, need a theory of the Consumption of 
Wealth." 



PART VI. 

SOME APPLICATIONS OF ECONOMIC FUm 

CIPLES. 



348. The Topics to be Treated.— It has seemed best 
to reserve to this portion of our work the discussion 
of some topics which involve the application of 
economic principles to questions of law or govern- 
mental policy, into which considerations of political 
equity or political expediency will intrude them- 
selves so that they can hardly be shut out ; and also 
to place here some matters of economic detail which 
might have unduly interrupted the course of our 
argument had they been dealt with at the points 
with which thej are logically connected. 

Throughout this part, therefore, I may be found 
to adduce considerations not strictly economic, with 
a freedom I have not allowed myself heretofore. 

The topics to be treated under this title are ; 

1. Usury Laws. 

2. The Banking Functions. 

3. Industrial Co-operation. 

4. Trades-Unions and Strikes. 

5. The Unearned Increment of Land. 

6. Political Money. 

7. Bimetallism. 



trsuBt. ^01 

8. Pauperism. 

9. The Revenue of the State. 

10. Taxation. 

11. "Protection" vs. Freedom of Production. 

I. 

USURY LAVTS. 

349. The Justification of Interest.— It has already 
been said (par. 15) that it is not the province of the 
economist to justify the existing order of things, or 
to establish the morality or the political equity of 
laws or institutions affecting property ; yet we shall 
get so good a side-light upon the economic j)rinci- 
ples governing the loan of cajDital in briefly consid- 
ering the objections that have been raised against 
interest, or the taking of usury, as it is invidiously 
called, that it may be worth our while to step out of 
the direct path for a moment, at this i3oint. 

For many centuries, and even within a compara- 
tivelyrecent x^eriod, the Christian Church proscribed 
the taking of usury as a moral olfence, and the laws 
of nearly all civilized countries made it a crime. 

The origin of the i3rejudice against usury is com- 
monly attributed to a mistaken apjDrehension of a 
provision of the Mosaic Code forbidding the receipt 
of interest from any member of the chosen race, and 
to a joassage in the works of Aristotle, those works 
which once had so profound and pervasive an influ- 
ence in forming the political philosoi3hy of Eurojie, 
to the efl'ect that as money does not 'produce "money, 
nothing more than the return of the principal sum 
lent can equitably be claimed by the lender. That 



S08 POLlTtGAL ECONOMt. 

dictum, claiming no divine authority but professing 
to found itself on reason, remained unchallenged for 
ages amid all the political speculations of Europe. 
Mr. McCulloch attributes to John Calvin the honor 
of having first detected the fallacy of this argument 
against usury. 

Money does, indeed, not produce money ; but if a 
man borrows money he may with it buy grain which, 
when sown, will bring forth "some thirty, some 
sixty and some an hundred fold;" he may pur- 
chase cattle, of which a small herd will, in a few 
years, become a mighty one ; or if he employs it in 
trade or in manufactures, his production may be so 
largely increased thereby that he may pay a liberal 
reward to the lender, and yet be far better off than 
if he had not borrowed. 

350. Interest Permitted.— England led the move- 
ment towards a more enlightened policy. By an 
act of 1546 lenders were allowed to receive interest, 
though at a rate not to exceed ten per cent. Subse- 
quent statutes reduced the rate of legal interest suc- 
cessively to 8, 6 and 5 per cent., at which last point 
it remained till the present reign (Victoria), when 
all restrictions on loans were abolished. 

Among the American States, Massachusetts has 
made contracts of loan as free as those of j)urchase 
and sale. 

Interest is now allowed to be paid on loans in all 
civilized countries, the prohibition of usury having 
fallen utterly out of the sympathies of this age. 
That the lender has a right to participate in the gain 
which the borrower anticipates from the use of the 
money or other commodities lent, is not better estab- 



mURY. 309 

lished in law tlian in the popnlar pliilosoi3liy of life. 
Money-lending has passed beyond all stigma ; and 
the profession of the banker, who organizes and 
conducts the borrowing of Avhole communities, is 
among the most honorable known to modern 
society. 

351. Shall the Borrower be Protected by Law? — 
Yet while it is now fully recognized as both right 
and expedient that the lending of money at interest 
should be not only allowed but encouraged, there 
still survives an opinion, very widely spread, that 
the taking of interest should be under the regula- 
tion of the State, to prevent the abuses which are 
apprehended from the power of the money-lender 
over the needy and necessitous borrower : that, to 
use Bacon' s phrase, '^ the tooth of usury be grinded, 
that it bite not too much." This opinion finds ex- 
pression in the statutes of nearly all nations and of 
many States of the American Union, and even in the 
general banking law of the United States. 

The term, usury laws, now, therefore, has refer- 
ence, not to the prohibition of interest but to its 
regulation, generally through the means of a pre- 
scribed maximum rate which it is made unlawful to 
exceed. 

I am not sure that these laws were, in an earlier 
time, wholly without justification in economics or 
in political equity. They were enacted in the in- 
terest of the would-be borrower, who was regarded 
as unable to sustain, without grave injury, which 
might also work injury to the community, the com- 
petition to which he was subjected in his efforts to 
secure the loan of capital. And in the age in which 



310 POLITICAL ECONOMY. 

these laws generally were enacted, this assumption 
was not without reason. 

Borrowers were, then, generally persons embar- 
rassed or distressed, whether by their own fault or 
by misfortune. Trade and manufactures were not 
then, as so largely now, carried on by means of bor- 
rowed capital. The man who asked a loan was pre- 
sumably in circumstances which put him very much 
at the mercy of the money lender. 

And the money lender in those days was not, in 
general, a nice sort of person. The recent out- 
breaks in Roumelia, Roumania and Russia testify 
to the natural feelings of a simxDle-minded, ignorant, 
passive, and more or less stupid people, who see 
houses and lands and cattle and goods, and even 
standing crops, pass with fatal certainty out of the 
hands of the many into the hands of a class in whom 
the faculty of acquisition is developed to such a de- 
gree as to make them, in comparison with a peasantry 
like that of the Slavonic States, as wolves among 
sheep. 

We allow all men to walk our streets indifferently, 
because men are so constituted physically as to be 
substantially equal, so far as contact is concerned. 
We brush each other and sometimes run full 
against each other, and yet give and take no harm. 
But suppose one-half the people of our cities were 
made to be as fragile and brittle as glass, while the 
other half were as heavy and as hard as iron, would 
not the law require the latter to go by separate 
streets, and protect the weaker part of the com- 
munity from a contact that would be fatal ? 

352. How Usury Laws are Evaded.— Among the 



XT8URY LAWS. Bll 

methods resorted to for evading the laws against 
usury may be mentioned the following : 

1. Fictitious dei30sits. — The bank scrux)ulously 
respects the legal prescrix)tion of a maximum rate 
of interest ; but its customers make up the difference 
by keex^ing " a large line of deposits." 

2. Commissions and fictitious exchange. — When- 
ever capital is in great demand, especially in times 
of commercial pressure, it is customary for bill 
brokers to charge "commissions," which are really 
nothing but additional interest, and for banks to 
create fictitious "exchange," by making notes pay- 
able in other x)laces, and charging a percentage on the 
transfer of the funds, which, also, is disguised in- 
terest. 

3. Another way in which the lender may obtain 
the advantage of which the law would dej)rive him, is 
by compelling the would-be borrower to take the 
cax^ital for a longer term than actually required. 

But of even more importance, in this connection, 
though it is rather to be regarded as one of the in- 
jurious effects of usury laws than as a means \)\xt- 
posely resorted to for evading them, is the fact of the 
forced sales of goods, ^ to which merchants and 
manufacturers are often driven by their inability, 
under tiie law, to pay a rate of interest sufficient, in 
hard times, to secure a needed loan. 

353. May Usury Laws Influence the Rate of Interest? 

* It is to tliis Lord Bacon alludes when lie says: "Were it not 
for this Q2i^Y borrowing upon interest, men's necessities would draw 
upon them a most sudden undoing, in that thej would be forced to 
sell their means (be it lands or goods) far underfoot ; and so 
whereas usury doth but gnaio upon them, had markets would swallow 
them quite up," 



312 POLITICAL ECONOMY. 

—On the whole, the question of the effect of usury- 
laws upon the rate of interest, in a primitive and 
mainly agricultural community, is not quite so 
simple as most writers on economics have re- 
garded it. On the one hand, I have no doubt that 
the lixing of a legal rate of interest has a certain 
effect upon the disposition of owners of capital in 
lending that capital. We have seen (par. 109), that 
the moral and intellectual elements of supply and 
demand are very potential in exchange. The cur- 
rent rate of interest, in a country where a rate is 
fixed by law, doubtless at times affords an example 
of the operation of this force. On the other hand, 
it is equally clear that such provisions of law may 
be evaded by the various means recited, and prob- 
ably will be evaded whenever the inducement 
offered is very great ; while, so far as borrowers are 
driven to shifts to disguise an excess of usury, they 
are likely to find themselves worse off than they 
would be in an open market. 

354. The Balance of Advantages.— But in any modern 
commercial community of large and varied and 
complicated industrial concerns, the case regarding 
laws fixing the rate of interest is a very simple one. 

In an advanced state of industrial society, where 
borrowing is no longer the resort of the embarrassed 
and distressed, alone, or mainly, but, on the con- 
trary, the most flourishing trade and manufactures 
are carried on chiefly by means of borrowed capital ; 
where, in the usual course of prosperous business, 
notes are made and are paid by thousands, or by 
tens of thousands, every day, usury laws become 
purely mischievous. 



THE BANKING FUNCTIONS. 313 

First, because the vastly greater interests of trade 
and industry would properly outweigh, were society 
called to clioose between them, the interests of dis- 
tressed and embarrassed individuals, in this matter 
of the loan of capital ; and, 

Secondly, because such persons will, in fact, 
benefit by the greater plentifulness of capital, the 
greater ease of borrowing, and the consequently 
lower rate of interest, Avliich, in general, result from 
freedom regarding contracts for loan in a commercial 
and manufacturing community. The "business 
classes," active, alert, aggressive in competition, will 
make rates of interest by which the less fortunate 
members of society will profit. 

II. 

THE BANKING FUNCTIONS. 

355. An Ancient Profession.— " The trade or profes- 
sion of banking," says Lord Liverpool, ''has been 
exercised in all countries and all ages. It existed 
in the republic of Greece and in ancient Rome. 
There were, in all these States, men who received 
money as a deposit, repaid it upon the drafts of 
those who had intrusted them with it, and derived 
their profits from having this money in their cus- 
tody." 

1st. Financiering.— In modern times, the first banks 
appear in Italy. Mr. Bagehot states that the earliest 
of these " were finance companies. The Bank of St. 
George, at Genoa, and other banks founded in imita- 
tion of it, were at first only companies to make loans 



BU POLITICAL ECONOMT. 

to, and to float loans for, tlie governments of tlie cities 
in which they were founded." 

356.— 2d. Book Credits of the Bank of Amsterdam.— 
The next banking function historically developed 
was that of giving the people good money in place 
of a medley of worn and. clipped coins of a great 
diversity of coinages, belonging to many nations. It 
was to serve this ofiice that the banks of Northern 
Europe were created. 

"Before 1609," says Adam- Smith, "the great 
quantity of clipped and worn foreign coin which the 
extensive trade of Amsterdam brought from all parts 
of Europe, reduced the value of its currency about 9 
per cent, below that of good money, fresh from the 
mint. 

" In order to remedy these inconveniences, a bank 
was established, in 1609, under the guarantee of the 
city. This bank received both foreign coin and the 
light and worn coin of the country, at its real in- 
trinsic value in the good standard money of the 
country, deducting only so much as was necessary 
for defraying the expense of coinage and the other 
necessary expenses of management. For the value 
which remained after this small deduction was 
made, it gave a credit on its books. This credit was 
called bank-money, which, as it rei^resented money 
exactly according to the standard of the mint, was 
always of the same real value, and intrinsically worth 
more than current money." 

It will be observed that Adam Smith calls these 
credits inscribed upon the books of the Bank of 
Amsterdam, "bank-money;" but this money, if it 
is to be called so, will be seen to differ widely from 



THE BANKING FUNCTIONS. 315 

the bank money of to-day, already described : 1st. 
It did not circulate from hand to hand, as the ordi- 
nary medium of effecting exchanges ; 2d. It was 
never in excess of the amount of metallic money 
actually on dei30sit in the vaults. 

357.— 3d. Cancellation of Indebtedness.— The next 
banking function, which we are called upon to 
notice, is the cancellation of indebtedness. 

An enormous volume of indebtedness at all times 
exists in any highly i^rogressive country, which has 
to be paid and renewed from day to day. The 
labor and loss of time involved in collecting debts 
and paying moneys, with the probable delay and 
disappointment involved therein, would be almost 
intolerable unless some si^ecial agency were estab- 
lished for doing this work upon a large scale and 
with all the advantages which we have found to re- 
sult from the ai^plication of the division of labor. 
This function the bank performs. 

If, in any great city, many banks are required to 
carry on this function, these banks, in turn, estab- 
lish a common agency for settling their mutual obli- 
gations, called a Clearing House. 

358.— 4th. Exchange.— The next banking function 
is to remit money and conduct exchange. 

In essence, where a man buys excliange — he buys 
the right to have paid to him, or his agent, or 
creditor, a certain amount of fine gold or silver, to 
be delivered in some other place mentioned in the 
contract. If I buy in New York "exchange on 
London," some one who owns gold in London, or 
who has a right to demand gold there, sells me his 
claim to receive a definite amount of that metal, in 



316 POLITICAL ECONOMY, 

London, at a definite time, or at my convenience if 
we so agree. I may tlien, either go to London and 
get the metal, as, for instance, if I am starting out 
on*a European tour, or I may send an order, by post 
or telegraph, for some one else to get it there, as, 
for instance, if I have bought jjictures in London. 

Now, we may suppose that, in order to induce 
some person to sell me "exchange on London," I 
have to pay him, not goods but a certain amount of 
gold in New York, where we both live. How much 
gold shall I pay him in New York to induce him to 
give me the right to receive a certain amount, say 
1,000 ounces, of gold in London? Shall I have to 
pay him 1,000 ounces, or more or less ? That depends 
on whether exchange is at par, or above par, or below 
par. 

Exchange between two places is at par, when, 
by paying a certain amount of money metal, or its 
equivalent, in one place, you can purchase the right 
to receive an equal amount of the same metal in the 
other. 

Exchange is above par or below par, when the 
right to receive elsewhere a given amount of gold or 
silver, is to be purchased by paying, in the one case, 
a larger, and, in the other case, a smaller amount of 
the same money metal, in the place where the trans- 
action is effected. 

Exchange will be at par when the sums of the 
payments to be made to and from any two places, 
within a given time, exactly balance each other. If 
the sum of the payments to be made within a 
limited period by the merchants of one place, say 
New York, to the merchants of another place, say 



THE BANKING FTTNCTIONS. 317 

London, is greater tlian the sum of the payments to 
be made in New York by the merchants of London, 
then, exchange on London will be above par in New 
York, that is, a New York merchant having to pay 
a debt, within that period, in London, will have to 
pay down more than 1,000 ounces of gold in New 
York to buy the right to have paid to him, or to 
his creditor, 1,000 ounces of gold in London. 

The upward limit of the premium on bills of ex- 
change is the cost of remitting sx)ecie. The New 
York merchant, in the case supposed, will not pay 
more, in addition to 1,000 ounces, than the cost of 
sending 1,000 ounces from New York to London, 
freight, insurance, and commission being taken into 
account. If the holders of bills demand a ]3remium 
above this, the New York merchant will send the 
metal, and in that way x^ay his debt. Within the 
limit thus assigned, the premium on bills rises or 
falls with the fluctuations of the market, according 
to the law of supply and demand. 

This function, again, the bank to a great extent 
performs, and in so doing renders the trading com- 
munity an immense service, saving an inconceivable 
amount of inconvenience and delay, of vexation and 
disappointment, often resulting in commercial dis- 
credit. 

359.— 5th. Safe Deposit.— The fifth banking function 
is to serve as a place of safe deposit. Mr. Francis, 
in his History of the Bank of England, attributes 
the rise of the city banks primarily to the need 
of this service on the part of shopkeepers and pri- 
vate persons of means. In this way the goldsmirhs' 
street in London, Lombard street, came to be the 



318 POLITICAL ECONOMY. 

bankers' street, the greatest banking street of the 
world. The ordinary bank is still, to a great ex- 
tent, a place of safe deposit for money, family 
jewels, deeds, and bonds, although special institu- 
tions for safe deposit are now found in many large 
cities. 

360.— 6th. Deposit and Discount.— The sixth and the 
chief of the legitimate functions of the modern 
bank is to serve as an intermediary in the loan of 
capital. 

The technical terms, deposit and discount, serve 
to characterize this function. It is in this way that 
banks make their largest contributions to the ad- 
vancement of commerce and industry. This office 
of banking is, however, as much overrated by some 
as it is underrated by others. Those who see the 
wonderful eifects wrought by gathering into one 
great reservoir the wealth of ten thousand individ- 
uals, much of which would otherwise be hoarded, 
or unwisely applied, and by conducting it thence, 
as occasions require, in various directions, through 
channels judiciously devised to secure the highest 
and most effective irrigation of the field of industry, 
are apt to imagine that the bank in some way 
creates capital. This is a wholly mistaken notion. 
The bank adds to the wealth of the community, 
only by economizing and directing it to the best 
ends. 

So important is this function that most European 
writers, when they speak of banking, have only in 
mind deposit and discount, all other functions being 
held to be minor and subordinate. 

361.— 7th. Issue of Paper Money. — To an American, 



CO-OPERATION. 319 

however, the word, banking, is more likely to bring 
up the notion of pajDer money. The issue of such 
money is the seventh and the last of the banking 
functions which we have occasion to describe. 

The great London Joint- stock banks, a single one 
of which holds deposits rising into tens of millions, 
and whose ordinary dividends are three, four or live 
times as great as those of the Bank of England, never 
issue a note. 

In this country, however, the word, bank, through 
much of our history, has to most people signified 
little more than a place where pajper money was 
manufactured. 

362. The Banking Agencies. — Such are the banking 
functions. The agencies by which these functions 
are performed may be grouped under four heads : 
(1), state banks ; (2), joint-stock banks ; (3), pri- 
vate banks ; (4), bill-brokers and dealers in ex- 
change. 



III. 



ITTDUSTRIAL CO-OPERATION. 

363. The Objects of Co-operation.— In Part lY. we 
have shown the X3lace in the scheme of Distribution 
that is to be occupied by what is termed co-opera- 
tion, should that project be, in any appreciable 
degree, realized. 

We said that the object of co-operation is to get 
rid of the ''entrepreneur," or employer, as an 
industrial agent. 

364. The Benefits Aimed at "by Co-operation. — Such 



320 POLITICAL ECONOMY. 

being the nature of co-operation, let us inquire a 
little more minutely what advantage might reason- 
ably be looked for from it, provided it were found 
practicable. 

Let us begin by taking the laborer's point of 
view: 

First : — To secure for the laboring class that large 
amount of wealth, which, as we have seen, goes 
annually in profits to the employer. 

Second : — To secure for the laborer the oppor- 
tunity to produce independently of the will of an 
employer. Under the existing industrial system, it 
remains with the entrepreneur to decide, not only 
what shall be produced, and how and when and in 
what amounts, but also whether any production at 
all shall take place. 

365. The foregoing are the two chief benefits 
which the laboring class have looked to co-opera- 
tion to secure for them. In addition to these, the 
political economist beholds in co ojoeration three 
sources of advantage. First : Co-operation would, 
by the very terms of the case, do away with strikes. 
The employer disappearing, these destructive con- 
tests, which are commonly called the confiicts of 
labor and capital, but are really confiicts between 
the laborer and the employer, would disappear 
also. Second : The workman would be incited to 
greater industry and to greater carefulness in deal- 
ing with materials and with machinery. The co- 
operative system would give him a direct, instant, 
certain interest in the product. Third: In no 
small degree would frugality be encouraged. While, 
under the existing entrepreneur system, the work- 



CO-OPEBATIOK 321 

man may save from his earnings and invest his 
means at interest, it cannot be doubted that a 
co-operative laborer having the opportunity to 
invest his savings at once in his own business would 
feel a much stronger inducement to frugality than 
does the wage laborer. 

366. The Difficulties of Co-operation. — The advan- 
tages Avhich would attend the successful establish- 
ment of co-operation being so many and so great, it 
may be asked why has this scheme, proposed so 
long ago, sanctioned by the highest economic au- 
thority, appealing directly to the self-interest of the 
laboring classes, not been immediately successful, on 
a large scale ? 

Co-operative enterprises may be divided into two 
classes— one attempting what we may call productive 
co-operation ; the other what we may call consump- 
tive CO- operation. In enterprises of the former class, 
the laborer seeks to make for himself an income ; in 
the latter he seeks to expend or consume that income 
to the best advantage ; to make each dollar of his 
daily or weekly earnings go as far as possible in 
providing subsistence for himself and family. 

367. Consumptive Co-operation has had no incon- 
siderable degree of success in England, in the way 
of shops for the sale of four, meats, groceries and 
other articles of domestic consumption. In the 
United States, the indifference of the people, even 
of the poorer classes, towards small savings, and that 
same unwillingness to take pains to secure a sound 
administration of trusts which has permitted munic- 
ipal and State governments to fall so largely into 
the hands of unworthy persons, have combineel 



322 POLITICAL ECONOMY. 

to limit very narrowly tlie application of this 
scheme. 

368. Productive Co-operation — But while consump- 
tive co-operation has had a degree of success which 
at least proves it to be a practicable scheme, given 
only a reasonable degree of popular interest in its 
maintenance, the history of productive co-operation 
alike in France, in England, and in the United States 
has been most discouraging. Of numberless enter- 
prises undertaken within the last thirty-five years by 
associations of laborers, with the encouragement and 
often the active assistance of philanthropists and 
political economists, and enjoying the benefit of a 
vast amount of gratuitous advertisement, scarcely 
any remain. 

369. The Difficulties of Productive Co-operation.— 
Why is it that co-operation, in the view of the many 
and great advantages which it offers, has had such 
partial and doubtful success ? The answer is at 
hand. The difficulties of productive co- operation 
are directly as its advantages. The arbitrary powers 
wielded and the vast profits enjoyed by the entre- 
preneur class make the working classes desire, 
naturally enough, to bring about an industrial order 
in which they shall no longer be subject to such 
exercise of authority, and in which they shall them- 
selves reap the large sums of wealth which they see 
passing into the hands of their employers. Yet 
when a body of laborers set up for themselves, the 
result very soon shows that the reason why the 
entrepreneur wields such despotic power and enjoys 
such revenues, is that he performs a part in modern 
industrial society which is of supreme importance. 



CO-OPEBATIOir. 323 

The time may come, in the development of the 
human race tlirough the education and elevation of 
the masses, when a body of laborers, joined together 
for the purpose of co-operative production, will give 
to their industrial enterj)rises as intelligent a direc- 
tion, as close a supervision, as rigid a discipline, as 
energetic an impulse, as the present successful man 
of business gives to the enterprises on which his 
fortunes and his rei3utation are staked ; but not a 
single instance is on record of a body of laborers 
having yet exhibited this capacity ; and, for one, 
though believing thoroughl}^, so far as politics are 
concerned, in a government of the joeople, by the 
people, for the people, I see nothing which indicates 
that, within any near future, industry is to become 
less despotic than it now is. 

The power of the master in production, '* the 
captain of industry," has steadily increased through- 
out the present century, with the increasing com- 
plexity of commercial relations, with the greater 
concentration of capital, with improvements in 
apj)aratus and machinery, with the multiplication of 
styles and fashions, with the localization and special- 
ization of maQufactures. 

I shall be heartily glad to see the working classes 
rise to the height of the occasion, and vindicate their 
right to rule in industry by showing their power to 
do it. But meanwhile it must be distinctly under- 
stood, that nothing costs the working classes so much 
as the bad or commonplace conduct of business ; 
that industry must be energetically, economically, 
and wisely managed, no matter who is to do it ; and 
that co-operation will be successful only as it results 



324 POLITICAL ECONOMY. 

in the production of equally good articles at equally 
low prices as those produced under entrepreneur 
management. 

If we have made our analj^sis of ]3rofits correctly, 
it appears (pars. 258-60) that the gains of the entre- 
preneur are not taken from the earnings of the 
laboring class, but are wholly the creation of wealth 
by the competent employer, whether in banking, in 
trade, or in manufacture : gains measuring the 
difference in production between the commcmplace 
or bad, and the able, and shrewd, and strong manage- 
ment of business. 



IV. 



TRADES-UNIONS AND STRIKES. 

370. The Objects of Trade Unions.— It has been 
shown (pars. 282-6, 290) under the title of Distribu- 
tion, that the question, whether any law or institu- 
tion does or does not promote the freedom of indus- 
trial movement enjoyed by the community, is a 
question not to be decided a priori^ but upon a 
consideration of the actual effects of such a law or. 
institution, comparison being made, not between 
the state which will result therefrom and an ideal 
state of perfect economic mobility, but between tne 
new condition and the condition which does exist 
or probably would exist without that law or institu- 
tion. 

Let us take the case of Trades Unions, so-called, 
which, in addition to much good work as so-called 
"Friendly Societies," often undertake, through 



TRADES - UNIONS AND STRIKES. 325 

agreements among themselves and perhaps simulta- 
neous strikes against employers, to fix wages, regu- 
late the hours of labor, and control many of the 
various details of industry. 

371. May Trades-Unions Promote the Interests of 
Labor?— If we have correctly discerned the action 
of competition, such associations cannot enable a 
body of laborers to act better in respect to the 
interests of each and of all of them, than could be 
done by each man intelligently seeking his own 
interest, solel}^, upon his own initiative. We have 
seen (par. 278-9) that comx^etition, perfect competi- 
tion, alfords the ideal condition for the distribu- 
tion of wealth. But as we saw in the case of the 
audience in a theater that had taken fire, the action 
of men in concert and under discii)line, while it 
can never be wiser than that of men acting coolly 
and intelligently for themselves, may be far wiser 
than the action of men stricken with panic and hur- 
ried into a senseless, furious rush. Respecting 
trades- unions, the question is not, whether joint 
action is superior to the individual action of persons 
enlightened as to their industrial interests, but 
whether joint action may not be better than the 
tumultuous action of a mass, each i)ursuing his indi- 
vidual interest with more or less of ignorance, fear 
and passion. 

Now, with a body of emjoloyers, few, rich and 
powerful, having a friendly understanding among 
themselves and acting aggressively for the reduction 
of wages or the extension of the hours of work, 
and, on the other side, a body of laborers, numer- 
ous, ignorant, poor, mutually distrustful, while 



326 POLITICAL ECONOMY. 

each feels under a terrible necessity to secure em- 
ployment, else wife and child will starve, who shall 
say that such a body of laborers might not be better 
able to resist the destructive pressure from the em- 
ploying body, if organized and disciplined, with a 
common purse and with mutual obligations enforced 
by the public opinion of their class, than if each for 
himself were to measure strength with his employer? 

I said, destructive pressure, for we saw that the 
pressure of competition, if it be unequal, may lead 
to the degradation of the laboring class. Just as the 
pressure of the atmosphere, which is imperceptible 
when equally applied over all sides, becomes crush- 
ing and destructive when the air is withdrawn from 
within or from below ; just as the waves over which 
and through which a ship rides unharmed, when 
herself free to move, become crushing and destruc- 
tive, let once the ship's bow be jammed between 
rocks or lodged in the sands. 

372. The Early English Strikes.— For myself, I 
entertain no doubt that the early strikes in England 
which followed the repeal, in 1824, of the Combina- 
tion acts, were essential to the breaking up of the 
power of custom and fear over the minds of the 
working classes of the kingdom. For centuries it 
had been a crime, by statute, for workmen to com- 
bine to raise wages or shorten the hours of labor, 
while masters were left perfectly free to combine 
to lower wages or lengthen the hours of labor to any 
extent.* The beginning of the century found the 

* " We have no acts of Parliament," wrote Adam Smith, in 1776, 
•' against combining to lower the price of work, but many against 
combining to raise it." 



STRIKES. 327 

laboring classes of England almost destitute of 
political franchises, unaccustomed to discussion and 
the communication of tliought, tax-ridden, poverty- 
stricken, illiterate. 

What else than the series of fierce revolts, the 
rebellions of down-trodden labor, which followed 
Huskisson's act of 1824, could, in an equal period of 
time, or, indeed, at smaller cost, have taught the 
employers of England to respect their laborers, and 
have taught the laborers of England to respect 
themselves ; could have made the latter equally 
confident and self-reliant in pressing home a just 
demand, or made the former equally solicitous to 
refuse no demand that could reasonably be con- 
ceded ? 

For, be it remarked, perfect competition, which 
affords the only absolute security possible for the 
equitable and beneficial distribution of the products 
of industry, requires that each and every man for 
himself should unremittingly seek and unfailingly 
find his best market. If for any reason, wdi ether 
from physical obstruction or legal inhibition, or 
from his own poverty or w^eakness of will or igno- 
rance, or through distrust of his fellows or a habit of 
submission to his employer or his social sujjeriors, 
any man fails, in fact, to reject the lower price and 
to seize the higher price, the rule of competition is, 
so far as that individual is concerned, violated. 

373. Strikes are the Insurrections of Labor. — To 
strikes I assign much the same function in industry 
wdiich insurrections have performed in the sphere of 
politics. Had it not been for the constant immi- 
nence of insurrection, neither France nor England 



328 POLITICAL ECONOMY, 

would througli several centuries have made any 
progress towards freedom, or even have maintained 
their inherited liberties. 

Strikes are the insurrections of labor. They are, 
of course, wholly a destructive agency. They have 
no creative power, no healing virtue. Yet, as insur- 
rections have played a most important part in 
the political elevation of downtrodden peoples, so 
strikes may exert a most powerful and salutary 
influence in breaking up a crust of custom wdiich 
has formed over the remuneration of a body of 
laborers, or in breaking through combinations of 
employers'^ to withstand a legitimate advance, of 
wages, where the isolated efforts of individuals, act- 
ing with imperfect knowledge, with scanty means, 
and under a dread of personal proscription, would 
have proved inadequate. 

Doubtless even more important than the specific 
objects realized by strikes, has been the advantage 
resulting from the permanent impression produced 
by these insurrections of labor upon the minds and 
the temper of both employers and employed. The 
men have acquired confidence in themselves and 
trust in each other ; the masters have been taught 
respect for their men, and a reasonable fear of 
them. 

Nothing quickens the sense of justice and equity 
like the consciousness that unjust and inequitable 
demands or acts are likely to be promptly resented 
and strenuously resisted. Nothing is so potent to 

* " Masters are always aud every where in a sort of tacit, but con- 
stant and uniform, combination, not to raise the wages of labor above 
their actual rate." — Adam Smith, 



STRIKES. 329 

clarify tlie judgment and moderate tlie temper, in 
questions of right or wrong, as to Ivnow tliat a mis- 
take will lead to a hard and a long iiglit. Tlie 
"sober, second though t" often reveals errors in com- 
l)utations wiiich had borne perfunctory tests, shows 
a way of escape from conclusions that had appeared 
inevitable, and opens a path to negotiation and com- 
promise Avhere strife was imminent. 

374. What is the Failure of a Strike ?— Nor must it 
be thought that because strikes often, perhaps we 
might say commonly, fail of their immediate ob- 
ject, they are, therefore, nugatory. Many an insur- 
rection has been put down sx3eedily, X)erhaps with 
great slaughter, which has been followed by remis- 
sicm of taxes, by redress of grievances, by extension 
of charters and franchises. It maj^- be considered 
doubtful whether the successful or the unsuccessful 
insurrections of England have done more to advance 
English liberties. Of the rising of the peasantry 
against Richard II., which was supjoressed in a few 
days. Prof. Thorold Rogers says: "The rebellion 
was X)ut down, but the demands of the villains "^ 
were silently and effectually accorded ; as they were 
masters for a wTek of the position, the dread of 
another servile war promoted the liberty of the 
serf." So even an unsuccessful strike may make 
employers more moderate, considerate and con- 
ciliatory, as they recall the anxieties, the struggles 
and the sacrifices of the conflict from which they 
emerged, in the immediate instance, victorious. 

375. Something Better than Strikes.— Yet, as insur- 

* Persons holding land by a servile tenure. 



330 POLITICAL ECONOMY. 

rectioiis. mark off tlie first stages of the movement 
towards political freedom, so strikes belong to the 
first stages of the elevation of masses of labor, long 
abused and deeply debased. With political rights 
such as are enjoyed by all classes in the United 
States, with universal education^ free land, the quick 
communication of ideas, the cheap transportation of 
persons and effects, and the abundant opportunities 
offered for accumulating and investing savings, it is 
a shame to us, as a people, that we have not yet 
made for ourselves a better way out of our indus- 
trial disputes. 

376. Factory Acts.— We should apply the same 
tests to any existing or projected legislation intended 
for the relief of the laboring classes, such as acts 
restricting the hours of labor, providing for the 
safety of operatives against accidents from contact 
with machinery, directing the sanitary inspection 
of workshops and factories, prohibiting the em- 
ployment of children of tender age or of women 
underground, or in work unsuited to their sex, or 
immediately before or after confinement. 

The one question in regard to each such measure 
is not whether its intention is philanthropic or 
otherwise ; not even whether it does or does not, in 
form, violate the principle of competition ; but 
whether it does, in effect,^ and in the large, the 

* "In discussing these matters, we need, above all things, dis- 
crimination. One hundred modes of government interference might 
be mentioned of which fifty might be very desirable and fifty con- 
demnable. In each case, as I contend, we must look to the peculiar 
aim, purpose, means and circumstances of the case." — Prof. Jevons: 
The State in Relation to Labor. 



FACTORY ACTS. 331 

long, result, leave the laboring classes better off or 
worse off as to the ability and disposition to seek 
and to find their best market ; whether, in fact, in 
the condition of industrial society then and there 
existing, it promotes or retards competition. 

The beginning of the present century found chil- 
dren of five, and even of three years of age, in En- 
gland, working in factories and brick-yards ; women 
working underground in mines, harnessed with 
mules to carts drawing heavy loads ; found the 
hours of labor whatever the avarice of individual 
mill-owners might exact, were it thirteen, or four- 
teen, or fifteen ; found no guards about machinery 
to protect life and limb ; found the air of the fac- 
tory fouler than language could describe, even could 
human ears endure the story. 

377. English Factory Legislation.' — The factory 
legislation of England began in 1802, with an act 
which limited the hours of labor in woolen and cot- 
ton mills to twelve, exclusive of meal times, imposed 
many sanitary regulations upon the working and 
sleeping rooms of operatives, required the instruc- 
tion of children during the first four years of 
ax^prenticeship, and provided an official inspection 
of establishments for the due execution of the law. 

Further legislation was had in 1816 and in 1831 ; 
while in 1833 was passed the important act known 
as 3d and 4th William lY., (ch. 103), which forbade 
night work in the case of all persons under eighteen 
years, and limited the labor of such persons to 
twelve hours, inclusive of an hour and a half for 
meals ; prohibited the employment of children under 
nine years of age — while between the ages of nine 



332 POLITICAL ECONOMY. 

and thirteen tlie hours of labor were reduced to 
eight ; prescribed a certain number of half-holidays, 
and required medical certificates of health on the 
admission of children to factories. Numerous acts 
subsequent to this have enlarged the scope of these 
provisions and extended them to other classes of 
workshops and factories. 

378, Economists Oppose Factory Legislation.^-Un- 
fortunately, the professors of political economy in 
the Universities, in Parliament, and in the press, 
generally ranged themselves in opposition to this 
legislation. Acting upon a series of arbitrary as- 
sumptions which fell far short of the facts of human 
nature, the English economists insisted uj)on attrib- 
uting to the individual initiative of the laborer, 
however miserable and blind and weak, however 
overborne by circumstances and bound to his place 
and work by poverty, ignorance and inertia, all that 
economic virtue which belongs to the individual 
initiative of the laborer when fully alive to his own 
interest, alert in seeking the highest price for his 
services or commodities, and able to move freely to 
his best market without hindrance from any source, 
whether within or without himself. 

They asserted that labor was fully competent to 
protect itself against abuses if left free by law. 
They argued that to limit the power of the operative 
to sell his labor must, in the end, diminish the price 
he will get for it, not seeing that, just as a crutch, 
while it is only a hindrance and a burden to a sound 
man, may keep a cripi)le from falling to the ground, 
and may even enable him slowly and feebly to walk, 
so a restriction upon contracts for labor may corre- 



THE UNEARNED INCREMENT. 333 

spond to an infirmity of the laboring classes under 
certain moral and physical conditions, in such a way 
as to give them a greater freedom of movement than 
they would have without it. 

V. 

THE Ul^EA-RNED INCREMENT OF LAND. 

379. The Law of Rent Re-Stated. — We have seen 
what is the nature of Rent. It represents the surplus 
of the produce over the cost of cultivation on the 
poorest lands actually contributing to the supply of 
the market at the time. 

We saw (pars. 220-22) that, conceding the private 
ownership of land, rent is merely a question between 
landlord and tenant ; that, so far as economic forces 
are concerned, rent must remain in the hands of the 
landlord ; that, setting violence aside, it can onlj^ 
come into the hands of the tenant by gift from the 
landlord ; that, were it, by virtue of the landlord's 
generosity, to reach the tenant, it would, so far as 
economic forces are concerned, go no further ; it 
could only be carried to the agricultural laborer or to 
the consumer of agricultural produce, by another 
gift or series of gifts. 

380. The Equities of Rent, as between Landlord and 
Tenant. — So much for the Economics of Rent ; let us 
look a moment at the equities of it. 

Certainly, as between the landlord and the tenant, 
the latter can set up no claim to any portion of rent. 
It is, as we have seen, of the very essence of rent 
that it represents, and is measured by, the surplus 



334 POLITICAL ECONOMY. 

of produce over tliecostof cultivation on the poorest 
(or most distant) lands under cultivation for tlie 
supply of tlie same market. J^ow, these poorest or 
most distant lands have occupiers who are clearly, so 
far as their industrial position is concerned, just as 
meritorious as those who cultivate the better lands 
or the lands nearer the market. 

381. As between Landlord and the Agricultural La- 
borer. — In the same way it may be shown that the 
agricultural laborers on lands which bear a rent have 
no claim, in equity, to any portion of that rent. 
Why should they receive any more for their services 
than the laborers who cultivate the no -rent lands 
and who would, therefore, receive no benefit from a 
remission of rent ? 

Clearly, then, as against either the tenant or the 
agricultural laborer, the landlord has an easy case. 
He can without any difficulty prove that neither of 
the two has any claim whatever to any part of what 
he receives as rent. 

382. As between the Landlord and the Community 
at Large. — But suppose tlie issue to be raised between 
the landlord and the whole community : can the ac- 
quisition by individuals of the entire surplus of the 
produce above the cost of cultivation on the poorest 
soils, be so successfully defended on grounds either 
of political equity or political expediency \ 

As this appears to me likely to become, in a near 
future, a "burning" question, I think it but right 
to present fully the argument of those who urge 
that " the unearned increment of land " should go 
to the State and not to individuals. This argument 
cannot be better presented than in the language of 



THE UNEARNED INCREMENT. 335 

Jolin Stuart Mill, wlio, in liis later days, became 
President of the English Land Tenure Reform Asso- 
ciation, whose professed object was to agitate this 
question. 

383. Mr. Mill's Argument. — "Suppose," says Mr. 
Mill, "that there is a kind of income which con- 
stantly tends to increase without any exertion or 
sacrifice on the j^art of the owner, these owners con- 
stituting a class in the community whom the natural 
course of things progressively enriches, consistently 
with complete passiveness on their own part. 

"Now this is actually the case with rent. The 
ordinary progress of a society which increases in 
wealth, is at all times tending to augment the in- 
come of landlords ; to give them both a greater 
amount and a greater proportion of the wealth of 
the community, independently of any trouble or 
outlay incurred by themselves. They grow richer, 
as it were, in their sleep, without working, risking 
or economizing." 

In another place, while professing a general re- 
sjDect for the rights of property, Mr. Mill i)roceeds : 

" Some i)eople ask, But why single out the land % 
Does not all property rise in value with the increase 
of prosperity ? I answer, No. All other property 
fluctuates in value, now up, now down. I defy any 
one to show any kind of property, not partaking of 
the soil, and sufficiently important to be worth con- 
sidering, which tends steadily upward, without any 
thing being done by the owners to give it increased 
value. So far from it, that the other of the two 
kinds of proi:>erty that yield income, namely, cajpital, 
instead of increasing, actually diminishes in value 



336 POLITICAL ECONOMY, 

as society advances. The poorer the country, or the 
further back we go in history, the higher we find the 
interest of money to be. Land alone— using land as 
a general term for the whole material of the earth — 
has the privilege of steadily rising in value from 
natural causes ; and the reason is that land is strictly 
limited in quantity ; the sujjply does not increase to 
meet the constant increase of demand." 

384. Mr. Mill's Laud Tenure Reform Agitation.— 
The following is an extract from the programme of 
the Land Tenure Reform Association, of which Mr. 
Mill was President : 

"To claim for the benefit of the State, the Inter- 
ception by Taxation of the Future Unearned Increase 
of the Rent of Land (so far as the same can be ascer- 
tained), or a great part of that increase which is 
continually taking place without any effort or outlay 
by the proprietors, merely through the growth of 
population and wealth ; reserving to owners the 
option of relinquishing their property to the State, 
at the market value which it may have acquired at 
the time when this principle may be adopted by the 
Legislature." 

385. A Tax on Bents is not a Tax on Produce.— 
It will be observed that what l\Ir. Mill and his asso- 
ciates here recommend is a tax of 100 per cent, or 
less, upon rent, i. e., the surplus profits of lands in 
excess of the cost of cultivating the poorest soils 
contributing to the supply of the market. 

How widely this differs from a tax on all culti- 
vated lands will be seen from Mr. Ricardo' s state- 
ment of the effect of the latter species of tax : 

*' If a land tax be imposed on all cultivated land, 



THE UNEARNED INCREMENT. 337 

however moderate tliat tax may be, it will be a tax 
on produce, and will therefore roAse the price of 
produce. 

"Consequently the consumer will be taxed not 
only to pay the exigencies of the State, but also to 
give to the cultivator of the better land a gratuity, 
during the period of his lease, and afterwards to 
raise the rent of the landlord to that amount." 

386. What Shall be Said of the Equity of this Pro- 
posal?— In their ai)peal alike to history and to i^oliti- 
cal equity, I cannot see that the Land-Tenure Re- 
formers under Mr. Mill's leadership were wrong. 
That by the original Teutonic constitutions the land 
belonged to the tribe or the community, and not to 
individuals, and was generally cultivated and en- 
joyed in common or by rotation of tenure ; (2,) that 
even when permanence of individual possession was 
established and titles were created, the occupation of 
land was charged with duties to the State, both of 
fiscal contribution and of personal service, which 
were most onerous and laborious, and which tended 
to increase ^s the needs of the State increased and 
as the rental value of the land increased ; (3), that, 
in Europe, generally, when the occupiers of land 
were released from these duties to the State, it was 
upon a consideration wholly inadequate or upon no 
consideration at all ; while that release was conceded 
by the land- owning class, as the ruling class, to 
themselves as parties in interest ; and (4), that the 
unqualified ownership of land, thus established, en- 
ables the land-owning class to reap a wholly un- 
earned benefit at the expense of the general com 
munity, these propositions seem to me indisputable, 



338 POLITICAL ECONOMY. 

387. What of its Expediency? — As a measure of 
political expediency, however, the scheme of the 
assumption by the State of the unearned increment 
of land, apj)ears fatally defective. 

In the first place, it must be observed that a large 
part, at best, of the possible mischief has already 
been done, beyond repair, in the surrender of the 
rights of the community to individuals. As that 
surrender is now generations, even centuries old, and 
as much of the land has changed owners, sometimes 
over and over again in the interval, many of the 
present x)ossessors having ]3aid the full price of to- 
day, in good faith, under existing arrangements 
which were fully sanctioned by law, it would be 
simple robbery^ for the State to reassert its interests 
in the land without fully indemnifying owners. 

This the English Land-Tenure Reform Association, 
in their programme already quoted, fully acknowl- 
edged. They proposed to ''reserve to owners the 
option of relinquishing their property to the State 
at the market value which it may have acquired at 
the time when this principle may be adopted by the 
Legislature." 

It is only, then, to the future increase in the value 
of land that this scheme would apply. 

But, secondly, government could, by the confession 
of the Association, not realize through this scheme 
all that is left after the foregoing deduction has been 
made. Inasmuch as the State is bound to be very 

*Mr. Henry George, an American writer, in a widely circulated 
work, entitled Progress and Poverty, has proposed that the State 
should confiscate the present value of all landed property, without 
Qompensation to owoer§, 



TBS v:^-^Anwsn mOUEMEi^T, 339 

careful and solicitous not to do injustice, tlie a23- 
praisement of the present rental value, or capital 
value of estates, in the administration of such a 
scheme, must be highly conservative. This, again, is 
frankly admitted by Mr. Mill. ^'It is not neces- 
sary," he says, "' to enforce the rights of the State 
to the utmost farthing. A large margin should be 
allowed for possible miscalculation." 

388. How About Depreciating Property ? — Thirdly, 
it is clear, that the State, if it will claim the benefit 
of all increase in the value of lands resulting from 
the growth of demand due to general causes affect- 
ing the increase of the community in numbers or 
productive power, is bound to make good all losses 
arising from that decrease in value which results 
from the decline of demand due to general causes 
acting in the opposite direction. If the so-called 
proprietor of land is not to be allowed to reap any 
gain not brought about by his own exertions, he 
must, in simple fairness, be protected against losses 
v/hich no vigilance or effort of his could have 
averted. 

Now, the range of this consideration is not a nar- 
row one. In almost every community, even the 
most flourishing, the phenomenon of declining 
values is seen side by side with that of rising 
values. 

And, fourthly, it is to be observed that, in adminis- 
tering this scheme of making good the loss of rental 
or capital value in the case of depreciating property, 
' * a large margin should be allowed for possible mis- 
calculation," which would operate to increase the 
amount which the community would be required to 



S40 Political ECoi^oMT, 

pay in indemnification of owners. And, thus, in 
still another way, tlie inducement to the state to 
assert its interest in the lands now held by individ- 
uals, would be diminished. 

389. Fifthly: — Practical objections might be 
multiplied ; but it will be sufficient to refer to the 
official jobbery, trickery, and corruption which 
would be involved in the management by the state 
of all the landed property of the country, either in 
an attempt to administer it productively, or in the 
occasional re valuation and re-leasing of it in parcels 
to suit the occasions of individuals. To my view, 
the condition of things that would result would be 
simply intolerable. 

When we contemplate the history of even petty 
transactions of a like character, on the pare of our 
national government or of the several state govern- 
ments, it seems impossible to conceive that any 
inducement should ever draw the American people, 
traditionally jealous of the enlargement of govern- 
mental powers, on to the adoption of such a meas- 
ure. 

YI. 

POLITICAL MOIiTEY. 

390. Inconvertible Paper Money is, by Distinction, 
Political Money.— In all modern societies, money is 
at once an economic agent and a political institu- 
tion. 

But there is one kind of money which owes its 
existence and acceptance as the common medium of 
exchange so completely to legislation or to the act 



POLITICAL MONET. 341 

of tlie ruler, tliat it may be called, by eminence, 
I)olitical money. This is tlie inconvertible j)aper 
money of which we wrote in Chapter 5, Part III. In 
comparison herewitli, all other forms of money 
known to modern commerce may be regarded as 
having so little of a political character as to justify 
their being called economic monej^ 

The essential difference between what we here call 
economic and what we call political money, is that 
the supply of the former, under free coinage, is 
limited by natural conditions of production, while 
the supply of the latter is released from all such 
conditions, and is made to depend upon law or the 
will of the ruler. It costs no more labor to X3rint 
two million dollars of paper money, or ten millions, 
or fifty, than to print one million. To multiply the 
amount of such money, it is only necessary to print 
the word fifty, or ten, or two, instead of the word 
one. 

391. The Liability to Evil Inhering in Political Money. 
— In the case of every proposed j^olitical institution 
or arrangement, we are bound to investigate, not its 
possibilities only, but also its probabilities. It must 
appear that its successful working does not depend 
upon an exercise of prudence, virtue and self- 
control, which are beyond what is reasonably to be 
exjoected of men in masses, and of rulers and legis- 
lators as we find them ; and the consequences of its 
possible perversion or abuse must be weighed 
against the advantages which might be derived from 
its legitimate application and employment. Paper 
money, then, as a political institution or arrange- 
ment, must submit to this test. 



342 POLITICAL ECONOMY. 

We liave already (par. 179) shown tliat the small- 
est degree of depreciation, even the mere liability to 
depreciation, may unsettle the exchanges between 
the paper money country and those with which it 
trades, in a degree to work very injurious effects. 
But what'We have here to consider is the liability to 
extensive over-issues, with an altogether new series 
of consequences to trade and industry. 

392. Two Motives Operating to Produce Expansion.— 
This liability arises from the fact that, where the 
principle of inconvertible paper has once been 
adopted, two powerful motives tend to produce ex- 
pansion, with no adequate restraining force in 
operation. All the selfish interests that make 
themselves felt, all the passions of the hour and the 
appetites that clamor for indulgence, favor expan- 
sion. There is a steady pressure on that side, which 
now and then rises to furious impulses against the 
frail barrier that withstands inflation. 

How far is it wise for any moderate advantage to 
call into operation forces which are only to be kept 
from becoming in the highest degree destructive by 
being constantly watched and unremittingly op- 
posed ? 

393. Time no Safeguard.— JSTor does the liability to 
over-issue diminish with the lapse of time. Modera- 
tion in the issue of government paper money does 
not form a political habit which becomes a security 
against abuse. On the contrary, the longer the 
regime of inconvertible paper money lasts, the 
greater the danger. The popular mind becomes 
accustomed to the sight and the thought of it ; the 
fear of it is worn off ; a generation comes upon the 



iJSrPLATIO^. 343 

stage that lias not known metallic money, or bank 
money convertible into coin on demand. 

The danger of over-issne always threatens incon- 
vertible paper money. The path winds ever along 
the edge of a preci]3ice. Vigilance cannot for a 
moment be relaxed. The prndence and self-restraint 
of years connt for nothing against any new onset of 
popnlar passion or in the face of a sadden exigency 
of government. 

394. The Fiscal Motive.— The exigencies of the x>nb- 
lic treasury constitute, perhaps, the most formidable 
of the two dangers which menace the integrity of a 
paper money circulation. 

"Real money," said Edmund Burke, "can 
hardly ever multiply too much in any country, 
because it will always, as it increases, be a certain 
sign of the increase of trade, of which it is the 
measure, and consequently of the soundness and 
vigor of the whole body. But this paper money 
may and does increase, without any increase of 
trade, nay, often when trade greatly declines^ for 
it is not the measure of the trade of the nation, but 
of the necessity of the government ; and it is absurd 
and must be ruinous, that the same cause which 
naturally exhausts the wealth of a nation should 
likewise be the only productive cause of money." 

395. Scaling Down Debts.— In all free governments, 
or governments miich subject to popular impulses, 
a second danger of over-issue arises from the appe- 
tite which is engendered in the masses of the people 
for further emissions for the purpose of scaling 
down debts, "making trade good," and enabling 
works of construction and extensive public improve- 



344 POLITICAL ECONOMY. 

ments to be undertaken, for which taxation could 
not easily provide the means. 

The intrusion of the debtor class into the legisla- 
ture, with their impudent demands for issues to 
scale down debts, is a familiar spectacle. Even the 
sterling virtue of early New England did not save 
those primitive communities from the fiercest im- 
pulses of political dishonesty, when once the paper 
money passion had been aroused. "Parties," says 
the historian Douglas, " were no longer Whigs and 
Tories, but creditors and debtors. Governors were 
elected and turned out as the different interests hap- 
pened to prevail. ' ' The same feature appeared early 
in the history of the French Revolutionary paper 
money. 

Paying debts is always a disagreeable necessity. 
For one man who would steal to acquire property, 
in the first instance, a score will do that which is 
no better than stealing, in order to retain property 
which has passed into their hands and which they 
have come to look upon as theirs, though not paid 
for. 

It is the view of not a few sound economists^ that 

* Tims Mk Chevalier says: " Such a change will benefit those who 
live by current labor; it will in jure those who live upon the fruits of 
past labor,? Miether their fathers' or tiieir own. In this it will work in 
the same direction with most of the developments which are brought 
about by that great law of civilization to which we give the noble name 
of progress." 

And Mr. J. ll, McCulloch declares that " though, like a fall of rain 
after a long course of dry weather, it may be prejudicial to certain 
classes, it is beneficial to an incomparably greater number, including 
all who are actively engaged in industrial pursuits, and is, speaking 
generally, of great public or national advantage." 



inflation: 345 

a gradually progressive cle23reciation of metallic 
money, from age to age, might be advantageous to 
society as a whole, both relieving industry in some 
measure from the weight of burdens derived from 
the past, and giving a certain fillip to industrial 
enterprise. 

But here the injury to the creditor class is not the 
w^ork of man, but of God ; like the death of a miserly 
bad man which brings his wealth into the hands of 
a generous, philanthro]3ic, public-spirited heir, at 
which change of ownership men may jiroperly re- 
joice. But had the heir procured the death of 
the miser, the aspect of the case w^ould have 
been entirely different. No plea of public S]3irit 
or benevolence in the disj^osition of the wealth 
could compensate society in the smallest degree for 
the deej) and damning wrong tlirough which that 
wealth changed owners. 

A reduction in the burden of obligations, accom- 
plished by the act of a legislature, in the issue of 
paper for the purpose of enabling the debtor to pay 
in a dei3reciated money, has no virtue in it to pro- 
mote industry or encourage enterprise. It carries 
with it the sting of injustice and fraud. It draws 
after it retributive agencies which curse the people 
and the age. 

yii. 

BI-METALLISM. 

396. The question of Bi-metallism is to be decided 
solely upon the principles which have been laid 
down in Part III. as governing the value of money ; 



S46 POLITICAL ^COmMT. 

but the question is one of so mucli popular interest 
and lias Ibeen so confused by tlie passionate contro- 
versy waged over it, tliat it may be worth while to 
set the points at issue fairly forth, for the assistance 
of the beginner in economics. 

And first let us depict the situation in view of 
which the controversy has arisen. 

397. The Gold-Using Countries.— We find one group 
of states, whose habits of trade make gold money, 
or bank notes predicated upon a reserve of gold 
money, the most agreeable and convenient medium 
of exchange. These are rich countries, having vast 
accumulations of wealth derived from the industry 
of the past. In them, because their productive 
power is large, wages are high ; in them trade and 
industry are organized with a great degree of com- 
plexity and minuteness. It is not needful for our 
present purpose to name all the countries of this 
group ; but clearly it embraces England, France, 
Belgium and Holland, in Europe, and the United 
States, on this continent. 

398. The Silver-Using Countries.— On the other 
hand, we find a group of countries — embracing an 
aggregate number of inhabitants many times greater 
than those previously mentioned, in which the 
facts of industry and the habits of the people re- 
specting exchange are such as to make gold an im- 
possible money. Such countries, beyond a doubt, 
are China and India, where the ordinary wages of 
labor range from two to eight cents a day. There 
are other countries — some in Europe and some 
in America settled by the people of Southern 
Europe — in which wages range from twelve to thirty 



BLMETALLISM. 347 

cents a day ; in which, reasons, both of practical 
convenience and of sentiment and habit, give a de- 
cided preference to silver, a preference so decided 
that it is not reasonable to anticipate that these 
countries will soon, if ever, pass over from the 
silver-using to the gold-using group of countries. 

399. What the Bi-Metallist Proposes.— It is this situa- 
tion which the bi-metallist has in view when he 
propounds his sclieme. Accepting the existence of 
a large group of countries in which gold naturally 
circulates as money and another in which silver is 
so used, he jjroposes to create a league of states, 
some of which are what we may, for brevity, call 
silver states, and some, gold states, which shall, 
each for itself, but by simultaneous action, establish 
the free coinage"^ of the two metals, and make the 
money of one metal to be legal-tender indifferently 
with money of the other metal, in payment of debts, 
at a certain ratio determined upon in advance by the 
consenting states. 

When asked what is the object in view in such 
an international arrangement, the bi-metallist 
adduces two considerations which he alleges to be 
of vast importance to the world's trade and in- 
dustry. 

400. A Par of Exchange Desired between Gold Coun- 
tries and Silver Countries.— The first is the establish- 
ment of a par of exchange between silver-using and 
gold-using countries. 

Between two countries having the same money 
metal, a normal par of exchange exists. This par 

* The distinction between free and gratuitous coinage is noted iu, 
par. 155, 



348 POLITICAL ECONOMY. 

of exchange is realized whenever the sum of the 
payments to be made in one country by merchants 
of the other countrj^, within a certain brief period, 
is equal to the sum of the payments to be made 
in the latter by the merchants of the former coun- 
try : in which event a merchant paying down a cer- 
tain amount, say 1,000 ounces, of the common 
money metal, say gold, in his own country, can 
thereby purchase the right to receive 1,000 ounces 
of that metal in the foreign country in question. 

Exchange will, in fact, fluctuate about this par of 
exchange, now above and now below, according to 
the movements of supply and demand, as these are 
determined by the relative amounts of debts to be 
paid and of payments to be received, respectively, 
in the course of trade between the two countries. 
The outside line of these movements of exchange is, 
as we saw, the cost of shipping specie. 

But between two countries having money of dif- 
ferent metals, say of gold in one country and of sil 
ver in the other, there is no par of exchange, 
irrespective of a bi-metallic league like that under 
consideration. Wholly in addition to the usual 
movements of exchange, the question how much of 
gold an Indian merchant can obtain the right to re- 
ceive in London, by paying down a certain amount 
of silver in Calcutta, depends on the silver price of 
gold, the gold price of silver, at the time. And as 
the two metals have their separate sources of sup- 
ply, and, to a certain extent, independent uses, 
whether in the arts or as money, their respective 
values are likely to fluctuate greatly. 

401. It is a necessary result of this that much more 



BI-METALLISM. 349 

uncertainty is involved in trade between a gold and 
a silver country than between two gold countries, or 
two silver countries : tlie chances of undeserved 
losses or unearned gains are greatly increased. No 
mercliant in a silver country selling to a gold coun- 
try, no merchant in a gold country selling to a silver 
country, can know for how much of the metal 
which forms the money of the country to which 
he exports his wares he must sell them, in order to 
make himself good for the- metal which he has 
expended at home in producing or purchasing 
those wares. 

It is true that, in one sense, what one merchant 
in an individual case loses some other merchant, or 
some banker, or some speculator, may gain. But it 
is fundamental in my view of political economy 
that unearned gains do not encourage industry to 
the extent to "which undeserved losses discourage it. 

402. Now this disadvantage under which interna- 
tional trade suffers, the bi-metallist professes to be 
able to remove, through the scheme that has* been 
described. 

It is one of the accidents of the controversy over 
this question that the mono-metallist writers are 
estojDped from denying that this result would, if 
practicable, be desirable in a very high degree. 
There are but few of those writers who have not, in 
discussion of the effects of inconvertible paper 
money, treated the loss of a par of exchange with 
foreign nations as a serious disaster. 

403. The Greater Stability of Value in Bi-metallic 
Money.— A second benefit to be attained, according 
to the bi-metallist programme, is that the two 



350 POLITICAL ECONOMY. 

metals, thus bound together, would constitute a 
better money than either metal by itself could be. 
The inequalities of mining production would tend in 
a degree to equalize each other, with the result of a 
greater uniformity in the production of the com- 
pound mass, and hence of a greater steadiness in the 
value of money. 

Here, again, the mono-metallists are at a contro- 
versial disadvantage. In order to establish the 
impracticability of the bi-metallic scheme, they 
have dwelt strongly on the tendency of the two 
metals to vary widely in value, and this view is 
fully borne out by the facts of the last three or 
four centuries. But this argument against the prac- 
ticability of the bi-metallic scheme virtually amounts 
to an admission of the merits of that scheme, if 
found practicable. 

I think it must be conceded, on this statement, 
that the bi-metallic scheme, if it could be carried 
out so as to realize the expectations of its advocates, 
would confer very great benefits upon international 
trade, and, by consequence, upon the production of 
wealth. 

404. Is it Practicable ?— Let us, then, inquire what 
are the economic conditions of the case : how far it is 
reasonable to believe that this scheme could be suc- 
cessfully established. 

What is the force to which the bi-metallist looks 
to restrain the tendency to divergence between the 
values of the two money metals, silver and gold ? 
It is evident that any rational scheme to influence 
value must aim at afi^ecting either supply or de- 
mand. Can, then, government influence the sup2)ly 



BI-METALLISM. 351 

of or the demand for a money metal ? Clearly, nn- 
mistakably, yes. Gfovernment can in a very great 
degree influence the demand for either of the money 
metals by coining it into money and conferring on 
the coin legal-tender power. 

To illustrate this, let us suppose that, in any 
country, both gold and silver are made legal tender 
in payment of debts, at the ratio of 15^ of silver to 
1 of gold : ^ that is, the law decrees that a debtor 
may extinguish an obligation by the payment of a 
certain number of ounces of gold, or, at his option, 
of fifteen and a half times that number of ounces of 
silver. Let it be assumed that, at the moment of the 
decree, this was the actual market ratio between the 
metals. 

Let it now be supposed that causes, natural or 
commercial, that is, affecting the supply of one 
metal or the other, or affecting the demand for the 
one or the other, begin to operate to produce a 
divergence from this ratio : say, to make an ounce 
of gold worth more than fifteen and a half ounces 
of silver, what will occurs The bi-metallic i)rin- 
ciple will at once begin to act in restraint of this 
movement towards divergence. 

How will it operate ? Through the desire of every 
debtor to meet his maturing obligations in the 
cheajpening metal. All debtors will, in the case 
supposed, seek silver. This extension of demand 
acts directly in contravention of the force which is 
lowering its value. 

*The ratio established in the States of the Latiu Union, viz., 
France, Italy, Belgium and Switzerland. 



352 POLITICAL ECONOMY. 

On the other hand, that metal — gold — which is 
tending to become dearer, from that fact alone falls 
out of demand. No debtor seeks it as the means of 
paying his debts. This diminution of demand at 
once oj)erates in counteraction of the forces tending 
to raise the value of gold. 

405. The Opinion of Mono-Metallic Writers.— Now, is 
this a purely fanciful view of the subject, taken 
only by the advocates of the bi-metallic scheme ? 
On the contrary, it has been seen in operation over 
extensive countries, of great commercial import- 
ance, through long periods of time ; and the 
validity of the cause is fully confessed by mono- 
metallic writers of the highest reputation. 

M. Chevalier, the eminent French economist, 
writing of this system as it XDrevailed in his own 
country in 1857, when, in consequence of the great 
gold discoveries in California and Australia, gold 
was tending to fall and silver to rise, and thus to 
pull away from the mint ratio of 15^ : 1, then estab- 
lished in France, speaks thus emphatically : 
" Whilst this state of things lasts, it will be impos- 
sihle^ at London, Brussels, Hamburg, or even at New 
York, or at any other great center of commerce, for 
gold to fall much below 15i times its weight in 
silver." And Prof. Cairnes, writing of the same 
period, said : " The crop of gold has been unusually 
large ; the increase in the supply has caused a fall 
in its value ; the fall in its value has led to its 
being substituted for silver ; a mass of silver has 
thus been disengaged from purposes which it was 
formerly employed J;o serve ; and the result has been 
that the two metals have fallen in value tog ether, ^^ 



BI-METALLI8M, 353 

Mr. Bageliot : '^ Whenever the values of the two 
metals altered, these countries acted as equalizing 
machines : they took the metal which fell ; they 
sold the metal which rose ; and thus the relative 
value of the two was kept at its old ]3oint." 

Prof. Jevons thus strikingly illustrates the com- 
pensatory action of the two metals : " Imagine two 
reservoirs of water, each subject to independent 
variations of supply and. demand. In the absence 
of any connecting pipe, the level of the water in 
each reservoir will be subject to its own fluctua- 
tions only. But, if we 0]3en a connection, the 
water in both will assume a certain mean level, 
and the effects of any excessive supply or demand 
will be distributed over the whole area of both reser- 
voirs. 

"The mass of the metals, gold and silver, cir- 
culating in Western Europe in late years, is exactly 
represented by the water in these reservoirs, and 
the connecting pipe is the law of the 7th Ger- 
minal, an XI, ^^ which enables one metal to take the 
place of the other as an unlimited legal tender." 

406. Bi-Metallism not a Chimera.— We see, thus, that 
the bi-metallic scheme is not'based upon any fanciful 
notion, but upon economic principles which are in- 
contestable. If it be worth while for any nation to 
undertake this work of holding silver and gold to- 
gether, it can do so just as long as it has any con- 
siderable quantity of the metal which at the time 
tends to become dearer, to dispose of ; if it be Avortli 

* 1803, French revolutionary style, the date commonly assigned to 
the establishment of the bi-metallic system in France. 



354 POLITICAL ECONOMY, 

wliile for any group of nations to undertake tliis, 
tliey can maintain the approximate equivalency of 
tlie two metals just as long as their Joint stock of 
the metal which at the time tends to become dearer 
remains unexhausted. Every additional state that 
joins the bi-metallic group strengthens the system 
in two ways, first by contributing to the stock of the 
metal which may, under the natural or commercial 
conditions prevailing at the time, tend to become 
dearer, and, secondly, by withdrawing itself from 
the list of states which may contribute to the de- 
mand for that metal. 

407. The Operation Illustrated.— We may suppose 
the commercial world to be divided into sixteen 
states, A to P, the first six having the single gold 
standard ; four, G to J, the so-called double stand- 
ard of gold and silver, under the bi-metallic system : 
say at \^\ : 1 ; the remaining states having the single 
standard of silver, thus : 

A, B, C, D, E, F, (G, H, I, J,) K, L, M, 1^, O, P. 

It is evident that, in the event of a change in the 
conditions of supply tending to cheajpen silver rela- 
tively to gold, the new silver would pass into the 
countries of the double standard G to J, and be 
there exchanged for gold, at the rate of 15^ : 1, with 
some small premium as the profit of the transaction, 
and, as a result, the gold displaced from the circula- 
tion would be exported to the gold countries, A to F, 
in settlement of trade balances. 

The rapidity with which this substitution of silver 
for gold in the bi-metallic states will proceed must 
dex)end, first, on the force of the natural causes 
operating to cheaj)en silver ; and, secondly, on the 



BI-METALLI8M. 355 

force of the commercial causes operating to maintain 
or advance tlie value of gold. The length of time 
during which the drain of the dearer metal can be 
sustained without exhaustion, will (given the rate 
of movement) depend solely upon the stock of that 
metal existing in the bi-metallic states when the 
drain begins. 

But chief among the commercial causes ox)erating 
to maintain or advance the value of gold, is the ex- 
clusive power with which gold is invested by law to 
pay debts in states A to F ; while the stock of the 
dearer metal available to sustain the drain described, 
is made up, not of all the gold in the sixteen states 
A to P, or in the ten states A to J, but only of the 
gold in the four bi-metallic states, G to J. 

Now, let us supi3ose the sixteen commercial states 
to be somewhat differently divided, as follows : 

A, B, C, D, (E, F, G, H, I, J, K, L,) M, IST, 0, P. 

The bi- metallic system is now not merely twice as 
strong but stronger in a far higher ]proi3ortion, since 
not only is the amount of the dearer metal subject 
to drain increased, but the demand for that metal, 
in preference to silver at 15| : 1, now comes from 
four countries only, instead of six, as formerly. 

The transfer of still another state from each of the 
two single-standard groups, would vastly increase 
the stability of the bi-metallic system. 

A, B, C, "(D, E, F, G, H, I, J, K, L, M,) N, 0, P. 
Not only would the base of the system be broadened 
by bringing the dearer metal of ten states, D to M, 
under tribute, in the event of changes operating on 
the suiDply of either metal to affect its value ; but 
the force of the causes threatening the equilibrium 



356 POLITICAL ECONOMY. 

of the system would be reduced, since the demand 
for the dearer metal would now come from only 
three states : A, B, C, in the case of a cheapening 
of silver relatively to gold ; N, O, P, in the case of 
a cheapening of gold relatively to silver. Those 
three states cannot take the dearer metal indefinite- 
ly. They would soon be surfeited. An excess of 
money in them would cause prices to rise, and gold 
(supj)osing gold, for example, to be the metal which 
tends to become the dearer) would no longer pur- 
chase in them more goods than silver would in the 
silver countries. In consequence, movement would 
cease and equilibrium be restored. 

And it is to be noted that, with a bi-metallic league 
embracing so many states, those which tended nat- 
urally to the use of silver as money would continue 
to use silver predominantly ; those which tended to 
use gold would still use gold as their main money of 
circulation. 

YIII. 

PAUPERISM. 

408. The Impotent vs. the Abie-Bodied Poor.— The 
relief of the impotent poor, whether by private or 
by public charity, is, so far as political economy is 
concerned with it, a question relating to the con- 
sumption of wealth. It is so much a matter of 
course, under our modern civilization, that the very 
young and the very old^ the crippled and deformed, 
who are unable to earn their own maintenance, shall 
not be allowed to starve, that the matter of relief to 
these classes becomes one of administrative detail, 



POOR RELIEF. 357 

that does not require even to be alluded to in an 
elementary treatise on economics. 

The experience of that country from which we 
derive our law and much of our administrative ma- 
chinery, is, however, so instructive as to the in- 
fluence for mischief upon the entire laboring popula- 
tion and upon the future production of wealth which 
may be wrought by ill considered x)rovisions for the 
distribution of alms to the able-bodied poor, as to 
make it worth while briefly to recite that experience 
here ; and thereupon to define the limits outside of 
Avhich the consumption of wealth for this purpose 
becomes x)rejudicial to production. 

We shall get at our subject most directly by in- 
quiring, Avhy it is that the laborer works at all. 
Clearly that he may eat. If he may eat without it, 
he will not work. The neglect or contempt of this 
very obvious truth by the British Parliament, dar- 
ing the latter part of the eighteenth and the earlier 
part of the nineteenth century, brought the 
working classes of the kingdom almost to the 
verge of ruin, created a vast body of hopeless and 
hereditary pauperism, and engendered vices in the 
industrial system which have been productive of 
evil down to the present day. 

409. Establishment of the English Pauper System. — 
By the act of the 43rd year of Queen Elizabeth's 
reign, every person in the kingdom was given a 
legal right to public relief, if required ; but volun- 
tary pauperism was severely dealt with, and the 
able-bodied were compelled to work. 

The principle of requiring the able-bodied p>oor to 
work continued for generations to be fundamental 



358 POLITICAL ECONOMY. 

in the Englisli pauper system ; and for the better 
enforcement of tliis requisition parishes or unions of 
parishes were, by an act of 9th George I., authorized 
to build workhouses, residence in which might be 
made a condition of relief. Moreover, from the days 
of Elizabeth to that of George III., the spirit which 
actuated the administration of the poor laws was 
jealous and severe. Doubtless in that administra- 
tion unnecessary harshness was sometimes prac- 
ticed ; but, on the whole, the effect on the working 
classes was wholesome, for it was made undesirable 
to become a pauper. 

410. Removal of the "Workhouse Test.— On the ac- 
cession of George III., a different theory came to 
direct legislation relating to poor relief, and a wide- 
ly different temper of administration began to pre- 
vail. Six successive acts, passed in the first years 
of George III.-, intimated the changed spirit in which 
pauperism was thereafter to be dealt with. In the 
22nd year of that reign, the act known as Gilbert's 
act gave a fuller ex]3ression to this spirit. By that 
act the workhouse was no longer to be used as a 
test of voluntary pauperism : 

The 32d section provided "That where there shall 
be in any parish, township or place, any poor person 
or persons, who shall be able and willing to work but 
who cannot get employment, the guardian of the 
poor of such parish, etc., on aj)plication made to 
him by or on behalf of such poor person, is required 
to agree for the labor of such poor person or persons 
at any work or employment suited to his or her 
strength and capacity, in any parish or j)lace near 
the place of his or her residence, and to maintain, 



ENGLISH PA UPEB LEGISLATION, 359 

or cause sncli person or persons to be properly 
maintained, lodged and provided for, nntil sncli em- 
X^loyment sliall be ]3rocnred, and during the time of 
such work, and to receive the money to he earned 
hy sucli loork or labor ^ and apply it in sucJi main- 
tenance as far as the same will go^ and maJce up the 
deficiency, if any.'' ^ 

By the repeal of the workhouse test, and by the 
additional most injudicious provision which we have 
placed in italics, a deadly blow was struck at the 
manhood and industrial self-sufficiency of the work- 
ing classes of England. 

411. The Logical Outcome. —By 1832 the false and 
vicious 2irincii3le on which Gilbert's act was based 
had been carried logically out to its limits in almost 
universal pauperism. The condition of the person 
who threw himself flat upon j)^^l3lic charity was 
better than that of the laborer who struggled on to 
preserve his manhood in self-support. The drone 
was better clothed, better lodged and better fed 
than the Avorker. 

All the incidents of this bad system were unneces- 
sarily bad. The allowance for each additional child 
was so much out of j)i'oportion to the allowance for 
adults, that the more numerous a man's children the 
better his condition, and thus the rapid increase of 
an already x^auperized population was encouraged ; 
while the allowance in the case of illegitimate chil- 
dren was even greater than for those born in wed- 
lock. "It may safely be affirmed," said the Poor 
Law Commissioners of 1831, ' ' that the virtue of 
female chastity does not exist among the lower 
orders of England, excejpt to a certain degree among 



360 POLITICAL ECONOMY. 

domestic servants, who know that they hold their 
situations by that tenure and are more prudent in 
consequence." 

Such may be the effects of foolish laws. The legis- 
lator may think it hard that his i^ower for good is 
so closely restricted ; but he has no reason to com- 
plain of any limits upon his power for evil. On tlie 
contrary, it would almost seem that there could be 
no nation, of any race of men, which a few laws 
respecting industry, trade and finance, passed by 
country squires or labor demagogues in defiance of 
economic principles, could not transform within half 
a generation into a nation of beasts. 

412. Poor Law Reform.— We have seen what a sys- 
tem the English squirearchy substituted for the 
economic law that he that would eat must work. The 
natural effects of this system were wrought speedily 
and effectually. The disposition to labor was cut up 
by the roots ; all restraints upon increase of popula- 
tion disappeared under a premium upon births ; 
self-respect and social decency vanished before a 
prize for bastardy. The amount expended in the 
relief and maintenance of the poor had risen, in 
1832, to £7,000,000. 

In this exigency, which, in truth, constituted one 
of the gravest crises of English history, Parliament, 
by the Poor Law Amendment Act (4th and 5th, 
William lY) returned to the princi]3le of the act of 
Elizabeth. The workhouse test was restored ; allow- 
ances in aid of wages were abolished ; paid overseers 
were appointed, and a central system was created 
for the due supervision of the system ; illegitimacy 
was discouraged by punishing the father, instead of 



BO W TO TREA T PA UPERISM. 361 

rewarding tlie mother ; and the law of pauper set- 
tlement was modilied so as to facilitate the migra- 
tion of laborers in search of emx^loyment. 

By this great legislative reform the burden of 
pauiDerism, in spite of the continuing effects of the 
old, evil system, was reduced in three years, by an 
average amount, the kingdom over, of forty-five jDer 
cent. 

413. The Principle that Should G-overn Poor Relief.— 
The moral of this episode in the industrial history 
of England is easily drawn. It is of the highest 
economic consequence that pauperism shall not be 
made inviting ; but that, on the contrary, the laborer 
shall be stimulated to the utmost possible exertions 
to achieve self-support, only accepting relief as an 
alternative to actual starvation. It is not, to this 
end, necessary that any brutality of administration 
shall deter the worthy poor who have no other re- 
source ; but, it should be the prime object of legis- 
lation on this subject to make the situation of the 
jjauper less agreeable than that of the independent 
laborer, and that, by no small interval. 

" All," says Mr. George W. Hastings, "who have 
administered the Poor Law, must know the fatal 
readiness with which those hovering on the brink of 
pauperism believe that they cannot earn a living, 
and the marvelous way in which, if the test be 
firmly applied, the means of subsistence will be 
found somehow." 



362 POLITICAL ECONOMY, 

IX. 

THE EEYENUE OF THE STATE. 

414. Tlie revenue of the State may be derived 
from : 

I. Voluntary Contributions. 

We who have lived in an age of legality can 
scarcely raise our minds to contemplate a state of 
society where the expenses of government should 
be met through spontaneous self-assessment by the 
citizen ; yet, in a more primitive condition, such a 
state of things has existed widely, and in a few in- 
stances has come down nearly to our day. 

The papal revenues may perhaps be brought 
under this title. Adam Smith cites Hamburg, 
Basle, Zurich, tJnderwald, Holland, and other com- 
munities, where the self -valuation of the citizen was 
accepted. 

415. II. Public Property, Lucrative Prerogatives, and 
State Enterprise. 

The following may be named as the chief sources 
of revenue under this head. 

(1.) Rent-charges in favor of the state as the pro- 
prietor of all lands. This has been fully discussed 
under the title : the Unearned Increment of Land. 

(2.) Escheat : the principle that the state is the 
proprietor of all property to which individual titles 
or claims are lost. 

Modern society whether out of sympathy with the 
property-right^ or from a ]30sitive desire to promote 
instincts of the s]3irit of accumulation, has given 
continually wider extension to the power of bequest 



REVENUE OF THE STATE. 363 

and to the principle of inheritance, until escheat, as 
a source of revenue, has ceased to be of much im- 
portance. 

In 1795, the great English law reformer, Jeremy 
Bentham, in a pamphlet entitled " Escheat vice 
Taxation," seriously propounded a scheme by which 
the entire revenue of the state should be dei'ived 
from this source. 

416. (3.) Fines and Forfeitures for Criminality 
and Delinquency. Since government exists largely 
for the protection of life, property and labor, the 
cost of maintaining government and admiiHstering 
justice might properly be drawn, if it were found 
possible, from the delinquent and criminal class. 

In feudal times, fines and forfeitures constituted 
a very important source of revenue to the crown. 

The crimes of those days were largely i)olitical, 
and political offenders are likely to be men of wealth 
and position, who v/ill be fat subjects for amerce- 
ments. The Wars of the Hoses were so fruitfnl of 
forfeitures that a large proportion of the land of the 
realm became the x)roperty of the crown. 

In the present age political crimes have become 
comparatively infrequent, and the criminal class are 
now mainly drawn from the poor, who are not 
proper, perhaps not possible, subjects for pecuniary 
exaction. 

Hence this branch of public revenue has shrunk 
into comparative insignificance. Fines and forfeit- 
ures pay a part of the expense of strictly judicial 
establishments, especially of the lower or police 
courts ; but they add little to the general receipts 
of the state. 



364: POLITICAL ECONOMY. 

(4.) Tributes from colonies, dependencies and con- 
quered nations, including war fines, requisitions 
and indemnities. 

(5.) The sale of offices, honors and titles. 

This source of revenue makes a prominent figure 
in the history of finance ; but has, at present, mainly 
a curious interest. 

417. (6.) Domains (L'Etat Capitaliste.) 
' Even under the modern European principle of the 
private ownership of land, the state is, in all coun- 
tries, the possessor of larger or smaller domains 
from which a revenue may be derived. 

It is the habit of writers on finance to speak, and 
perhaps justly, in the most disparaging tone of the 
administration of public estates for productive 
purposes. Adam Smith exj)resses himself in the 
strongest terms. ' ' The servants of the most negli- 
gent master are better superintended than the serv- 
ants of the most vigilant sovereign." Referring to 
his own country, he says : ' ' The crown-lands of 
Great Britain do not, at present, afford the fourth 
j)art of the rent which could probably be drawn 
from them, if they were the i^roperty of private per- 
sons. If the crown-lands were more extensive, it is 
probable they would be still worse managed.' ' And, 
not to disparage English administration too greatly, 
he adds : "In the present state of the greater part 
of the civilized monarchies of Europe, the rent of 
all lands in the country, managed as they would 
probably be if they all belonged to one proprietor, 
would scarce amount, perhaps, to the ordinary rev- 
enue which they levy upon the people^ even in 
peaceful times." 



REVENUE OF THE STATE. 365 

However mucli tliis statement might require to be 
modified witli respect to the management of govern- 
ment property in a country like Germany, with its 
admirable civil service and its systematic adminis- 
tration of public trusts, no one would think of 
questioning the full literal truth of Adam Smith's 
declaration if a]3plied to our own country, with its 
civil service based upon the principle of rotation in 
office and appointment as the reward of ]3artisan 
activity. 

Of the present European States, Kussia, Prussia, 
Bavaria, Sweden, and Hanover, derive considerable 
revenues from public domains, the first named being 
pre-eminent in this respect. 

418.— (7.) State Enterprise (L'Etat Entrepreneur). 
— Whatever the disabilities of the State in acquiring 
a revenue from the rental or sale of property, 
whether that consist of agricultural lands, or mines, 
or forests, or fisheries, or phos23liate dejjosits, those 
disabilities are greatly increased when the state seri- 
ously undertakes the management of commercial or 
manufacturing business. The state as ca^^italist is 
at no small disadvantage ; as entrepreneur, that dis- 
advantage is vastly aggravated. 

Yet the rule of failure, on this side of governmen- 
tal agency, is not unbroken. Dr. Smith mentions 
the republic of Hamburg as deriving a considerable 
revenue from a public wine cellar and from an 
apothecary's shop. The profits of banking have 
been realized in a notable degree by several cities 
that were also states, as Hamburg, Venice and 
Amsterdam. The Post-Office can be made, and has 
been made, ''to pay/' and that handsomely. The 



366 POLITICAL ECONOMY. 

businesses of distilling in Rnssia, of sugar refining in 
Egypt, and of ox3iuni manufacture in British 
India, have been made the subjects of no inconsider- 
able profit to government. The supply of towns in 
the matter of water, and, in a smaller number of in- 
stances, of gas, has been attempted, not unsuccess- 
fully, by munici|)al governments. 

The instance, however, which goes furthest to 
contradict the generally received opinion of the 
hopeless incapacity of the state to conduct indus- 
trial enterprises, is afforded by the railways of Ger- 
many. 

419. III. Quasi Taxes.— The following may be 
named as sources of revenue under this head ; 

(1.) Monopolies, conferred uj)on individuals or 
corporations, in consideration of a capital sum paid 
down, or of a definite share in the resulting 
profits. 

Monopolies have played a most conspicuous part 
in the history of public revenues ; and, in spite of 
the spirit of the age, which is, in general, strongly 
opposed to exclusive privileges of manufacture and 
sale, they still form a prominent feature in the 
budget of many of the most progressive countries of 
Europe. 

Monopolies may be commercial, industrial, or 
financial. The distinction between the monopolies 
of the past and those of the present day, is most 
marked. Formerly monopolies were granted, for 
the profit of the government, to X)ersons and corj^o- 
rations to carry on a vast variety of operations, 
great and small alike, most of which were suscepti- 
ble of private management. 



REVENUE OF THE STATE. 367 

Such were the monopolies of the 17th and 18th 
centuries. To-day, under the light of X)olitical 
economy, all x)rudent governments restrict the prin- 
ciple of monopoly to a very few very important in- 
terests, and, by preference, to those which in their 
nature tend to monopoly. 

But there are also certain special interests of great 
commercial importance, in every way fitted for pri- 
vate management, which, on account of their high 
capability for yielding revenue, some of the most 
enlightened nations still constitute exceptions to the 
principle of open public competition in manufac- 
ture and trade. 

Among the objects thus specially excepted by 
many modern states from the princijDle of comj)eti- 
tion, in the interests of revenue, are opium, salt, 
tobacco and matches. 

420.— (2.) Lotteries. This needs only to be men- 
tioned as a source of revenue largely made use of, in 
the past, by almost all governments, and still form- 
ing an important feature in the budget of some 
civilized countries. 

(3.) Purveyance. — The right of buying provisions 
and other necessaries for the use of the royal house- 
hold, at an appraised valuation, in preference to all 
other purchasers and even without the consent of 
the owner, is now greatly restrained and confined, 
and in almost all highly civilized countries is wholly 
discontinued — except during actual war, or in the 
case of a royal progress. 

(4.) Fees. — A fourth mode of raising revenue 
which partakes largely of the nature of a tax, 
without bearing its form, is through the exaction of 



368 POLITICAL ECONOMY, 

fees for stated or occasional services performed by 
the agents of the State. 

It is fairly a question whether the maintenance of 
the ordinary roads of a country is not, in such a 
sense, and in so far, a general charge that fees, 
under the name of tolls, constitute a quasi tax, in- 
stead of being, according to the assumption on 
which they are collected, the price paid by the in- 
dividual for a service rendered to himself directly 
and exclusively. 

Of the remaining forms of quasi taxes (5) seignior- 
age on the coin, and (6) the issue of j)aper money, 
whether with or without a reserve of s|)ecie for re- 
demption purposes, enough has been said in Part 
III. 

421. IV. Taxation in its Various Forms.— Under the 
next title we will inquire, as fully as our narrow 
limits of space will permit, respecting the several 
theories of taxation which have been indicated. 



X. 



THE PEIITCIPLES OF TAXATION. 

422. Inadequacy of the Literature of Taxation.— 
According to an eminent German financier, Hoff- 
mann, it would be difficult to find in the whole 
realm of political economy a subject more generally 
misconceived, more disfigured by false views, more 
degraded by a partial study, than Taxation. 

423. Adam Smith's Maxims.— Perhaps as good an 
idea of the feebleness and emptiness of the English 
literature in this department can be obtained as in 



TEE BASIS OF ASSESSMENT. 369 

any otlier way by referring to Adam Smith's 
maxims respecting taxation. Dr. Smith proposed 
four maxims or principles, " which," says Mr. Mill, 
"having been generally concurred in by subsequent 
writers, may be said to have become classical." 
Probably two-thirds of all English writers on politi- 
cal economy since Smith have referred to these 
rules, and more or less fully quoted them; many 
have adoi^ted them entire, and made them the basis 
of their treatment of the subject of taxation. 

The first and most important, as it is the most 
famous, of these rules concerns the ground of assess- 
ment, as follows: "The subjects of every state 
ought to contribute towards the support of the gov- 
ernment as nearly as possible in proportion to their 
respective abilities ; that is, in proportion to the 
revenue which they respectively enjoy under the 
protection of the state." 

424. The Social-Dividend Theory of Taxation.— 
This maxim, though it sounds fairly, will not bear 
a close examination. What mean those last Avords, 
"under the protection of the state?" They are 
either irrelevant, or else they mean that the protec- 
tion enjoyed affords the measure of the duty to 
contribute. But, the doctrine that the members of 
the community ought to contribute to the public 
support in proportion to the benefits they derive 
from the protection of the state, or according as the 
services performed in their behalf cost less or cost 
more, involves practical absurdities of the grossest 
character. 

Those who derive the greatest benefit from the 
protection of the state are the poor and the weak— 



370 POLITICAL ECONOMY, 

women and cliildren and tlie aged ; the infirm, tlie 
ignorant, tlie indigent. The man of wealth can in a 
degree protect himself. He is not brought, in the 
pursuit of his interests, into dangerous situations ; 
while at home he can defend himself from violence 
by appliances beyond the reach of the cottager. 

Even as among the well-to-do and wealthy classes 
of the community, does the protection enjoyed fur- 
nish a measure of the duty to contribute 1 If so, 
the richer the subject or citizen is, the less, propor- 
tionally, should he pay, since the cost of protecting 
wealth in single hands increases at a lower ratio 
than the wealth itself. It is easier to guard and 
keep from harm $100,000 situated in one place than 
the same amount distributed among twenty places. 
A man who buys protection in large quantities 
should get it at wholesale prices, like the man who 
buys flour and meat by the car-load. Moreover, it 
costs the state far less to collect a given amount 
from one taxpayer than from many. 

Returning to the maxim of Dr. Smith, I ask, does 
it j)ut forward ability to contribute, or protection 
enjoyed, as affording the true basis of taxation ? 
Which ? If both, on what principles and by what 
means are the two to be combined in practice ? 

425. Taxation According to Ability.— But if we take 
tnelast six words, as merely a half-conscious recog- 
nition of the Social-Dividend theory of taxation, 
and throw them aside as inconsistent with Dr. 
Smith's real intention, we shall still find this much- 
quoted maxim far from satisfactory : ''The subjects 
of every state ought to contribute towards the sup- 
port of the government as nearly as possible in pro- 



TAXATION ACCORDING TO ABILITY. 371 

portion to their respective abilities ; tliat is, in x^ro- 
portion to the revenue which they resjDectively en- 
joy-" 

But are the abilities of two persons to contribute 

necessarily in proportion to their respective reve- 
nues ? Take the case of the head of a family having 
an income of $500 a year, of which $400 is absolute - 
ly essential to the maintenance of himself and wife 
and children in health and strength to labor. Is the 
ability of such a person, who has only $100 which 
could possibly be taken for public uses, one half as 
great as that of another head of a family similarly 
situated in all respects excex3t that his income 
amounts to $1,000, and who has therefore $600 
which could conceivably be brought under contri- 
bution? Manifestly not. 

We shall, then, still further improve Dr. Smith's 
maxim if we cut away all after the first clause : '^ The 
subjects of every state ought to contribute towards 
the support of the government as nearly as possible 
in proportion to their resx)ective abilities." The 
maxim as it stands is unexceptionable, but does not 
shed much light on the difficult question of assess- 
ment. 

426. The Leave-them-as-you-Find-them Rule of Taxa- 
tion.— The best statement I have met of the principle \ 
of contribution based on ability is contained in an 
article in the Ediiiburgli Review of 1833 : " ]N"o tax 
is a just tax unless it leaves individuals in the same 
relative condition in which it finds them." What 
does the precept, which we may call the leave- tliem- 
as-you find-them rule of taxation, demand ? In 
seeking an answer to this question, let us inquire, 



^1^ POLITICAL ECONOMY. 

liistofically, what bases have been taken for assess- 
ment. We note fonr : "^ 

3 . Contribution has been exacted on the basis of 
"Realized Wealth, commonly spoken of as capital. 

2. On the basis of Annual Income or Revenue. 

3. On the basis of Faculty, or native and acquired 
power of production. 

4. On the basis of Expenditure, or the individual 
consumption of wealth. 

These are the four historical bases of taxation. 
Let us see how far each in turn answers the require- 
ment that the subject or citizen should contribute 
according to his ability. 

427. Taxes on Realized Wealth.— And, first, of Real- 
ized Wealth as a basis of assessment. Wealth is 
accumulated by savings out of revenue. If, then, 
wealth alone is to be taxed, it is saving, not pixD- 
duction, which contributes to the support of the 
State. Economically, there cannot be a moment's 
doubt that for government thus to draw its revenue 
from only that part of the j)roduced wealth of the 
community which is reserved from immediate ex- 
penditure, either for assurance against future ills 
and provision for future wants or for active employ- 
ment in current production, must be in greater or 
less degree prejudicial. The question also arises, 
where is the political or social justice of such a rule 
of contribution ? If my income belongs to me, to 

* It will be noted that we do not mention Ren t-bearing Land. A 
tax on Rent is, as we have seen, not a general tax. It does not affect 
the price of produce. It does not fall on those members of the com- 
munity who do not own land. This subject has been sufficiently dis- 
cussed under the title, the Unearned Increment of Land. 



TAXATION OF REYENTIES. 373 

spend for my own comfort and gratification, loitJi- 
out any deduction for the uses of the state, why 
should Hose my right to any part of it because 1 
save it f To tax realized wealth is to punish men 
for not consuming their earnings as they receive 
them. Yet it is eminently for the public interest 
that men should save of their means to increase the 
capital of the country. 

428. Revenue as the Basis of Taxation.— Turning to 
Kevenue, it would seem, on the first thought, that 
we had reached a rule of equitable contribution. 
Yet the rule of contribution according to revenue 
is subject to grave im^jeachment on grounds of 
justice. 

Here are two men of equal natural powers. One 
is active, energetic, industrious ; he toils early and 
late and realizes a considerable revenue, on a por- 
tion of which the state lays its hand. The other 
lets his natural powers run to waste ; trifles with 
life, lounges, hunts, fishes, gambles, and is content 
with a bare and mean subsistence. Was his duty 
to contriMite to the support of the state less clear or 
less in degree than that of the other f If not, hoio 
has his idleness, shiftlessness, worthies sness, for- 
feited the state^ s right to a contribution from him 
in proportion to his ahilities f 

We must, I think, conclude that, while to tax 
wealth instead of revenue is to put a premium,u|)on 
self-indulgence in the expenditure of wealth for 
j)resent enjoyment, to tax revenue instead of faculty 
is to put a premium upon self-indulgence in the 
form of indolence, the waste of opportunities, and 
the abuse of natural powers. 



374 POLITICAL ECONOMY. 

429. Expenditure as the Basis of Taxation.— Passing 
for the moment by our third title, we find that the 
fourth basis taken for taxation has been Expendi- 
ture. This must not be confounded with taxes on 
consumption, as constituting a part of a tax sys- 
tem in which taxes on realized wealth, taxes on rev- 
enue, taxes on faculty, one or all of these, also ap- 
pear. Nor do we speak here of taxes on expendi- 
ture imposed in practical desi3air of an equitable 
distribution of the burdens of government. We 
are now concerned with expenditure only as the 
single basis of taxation, in the interest of political 
equity. 

"It is generally allowed," wrote Sir William 
Petty, two hundred years ago, "that men should 
contribute to the public charge but according to the 
share and interest they have in the public peace ; 
that is, according to their estate or riches. 

"Now, there are two sorts of riches, one actual 
and the other potential. A man is actually and 
truly rich according to what he eateth, drinketh, 
weareth, or in any other way really and actually 
enjoyeth. Others are but potentially and imagina- 
tively rich who, though they have X30wer over much, 
make little use of it, these being rather stewards 
and exchangers for the other sort than owners for 
themselves. 

"Concluding, therefore, that every man ought to 
contribute according to what he taketh to himself 
and actually enjoyeth, the first thing to be done is," 
etc., etc. 

In this view of taxation, so far as any member of 
the community possesses wealth in forms available 



TAXATION UPON EXPENDITURE. 375 

for the future production of wealth, he is regarded 
as a trustee or guardian, in that respect and to that 
extent, of the x^ublic interests. Just this is said by 
Arthur Young — taxes "can reacli with proj)riety 
the expenses of his living only. If they touch any 
other part of his expenditure, they deprive hira of 
those tools that are worMng the business of the 
stated 

430. Fallacy of this Doctrine.— But is it only eating, 
drinking, wearing, or some other mode of x^ersonal 
consumption, which constitutes such an individual 
aj)propriation of wealth as to make its use selfish, 
and thus bring it within the proper scope of taxa- 
tion ? Sux^pose that a weak, sanguine, vain-glorious, 
or willful owner of wealth applies it to what are in- 
tended to be productive enterprises, but to such as 
are foolish, unjustified by the existing conditions of 
industry or trade, likely to result in loss and waste. 
Let us assume such an investment to have taken 
l)lace : a canal, for example, for which there was no 
adequate occasion, to have been constructed. 

The theory of the equities of taxation which we are 
considering maintains that, not when this wealth 
was first created and became revenue, had the state 
a right to excise it for public uses, because it had 
not then been selfishly appropriated to personal en- 
joyment ; not when it was saved out of revenue and 
became wealth, did the state acquire the right to 
take any x)ortion of it for public uses, since it had 
not yet passed into consumption ; and that at no 
stage, from its creation to its final dissipation and 
disappearance as wealth, did the state obtain any 
claim upon any portion of it, because no individual 



376 POLITICAL ECONOMY. 

had derived an exclusive benefit from it. And yet 
the community derived no benefit from it. 

431. I do not see but that, if capital, or revenue in 
excess of personal expenditure, is to be exempted 
from taxation, on the plea that it has not yet be- 
come the subject of individual and exclusive appro- 
priation and is, therefore, presumably held and used 
in a way which primarily benefits society, the state 
has a right to inquire whether the use made or pro- 
posed to be made of wealth is such as will in fact 
benefit society, and benefit society, moreover, in the 
highest degree of which it is capable. 

The citizen, using this argument, says to the state, 
" You must not tax, excise, cut any thing off, this 
wealth I hold, because I have not yet appropriated 
it exclusively to myself. Indeed, I am going to use 
it for the benefit of society." The state rejoins : 
" Yes, but of that we must satisfy ourselves. We 
must be the judge whether your use of your wealth 
will benefit society. Pay your taxes, and you can 
do with your wealth as you like. Claim exemption 
on the ground of public service, and you rightfully 
come under state supervision and control." 

432. The Dangerous Nature of this Doctrine. — This 
doctrine of the trusteeship of Capital is nc+, more 
irrational than it is socially dangerous. If the owner 
of wealth is but a trustee ; if ' ' his tools are working 
the business of the state," then the real beneficiary 
may enter and disjjossess the trustee if any substan- 
tial reason for dissatisfaction as to the management 
of the property exists ; the state may take the tools 
into its own hands and "work its business" for 
itself. 



TAXES BASm ON FACULTY. 377 

433. Faculty as the Basis of Taxation.— I reach, tlien, 
the conclusion that Faculty, the power of produc- 
tion, constitutes the only theoretically just basis of 
exj)enditure ; that men are bound to serve the state 
in the degree in which they have the ability to serve 
themselves. 

I think we shall more clearly see Faculty to be 
the true natural basis of taxation if w^e contemplate 
a primitive community, where occupations are few, 
industries simple, realized w^ealth at a minimum, 
the members of the society nearly on a level, and the 
wants of the state limited. Suppose, now, a work 
of general concern, ]3erhaps of vital importance to 
the community, requires to be constructed : a dyke, 
for instance, against inundation, or a road, with oc- 
casional bridges, for communication with neighbor- 
ing settlements. What would be the rule of con- 
tribution ? Why, that all able-bodied persons should 
turn out and each man work according to his facul- 
ties, in the exact way in which he could be most 
useful. 

In regard to a community thus for the time en- 
gaged, we note two things : first, that no man would 
be held to be exempted because he took no interest 
in the work which had been decreed as of general 
public concern ; that he would not be allowed to 
escape contribution because he was willing to relin- 
quish his share of the benefits to be derived, prefer- 
ring to get a miserable subsistence for himself by 
hunting or fishing ; secondly, that, between those 
working, a higher order of faculties, greater muscu- 
lar power, or superior skill would make no dis- 
tinction as to the time for which the individuals 



S7S POLITICAL ECONOMT. 

of tlie community should severally remain at 
work. 

434. The Ideal Tax.— This is the ideal tax. It is the 
form of contribution to which all primitive com- 
munities instinctively resort. It is the tax which, 
but for purely practical difficulties, would aiford a 
perfectly satisfactory measure of the obligation of 
every citizen to contribute to the sustentation and 
defense of the state. Any mode of taxation which 
departs in essence from this involves a greater or 
smaller sacrifice of the equities of contribution ; and 
any mode of taxation which dejoarts from this in 
form is almost certain to involve a greater or smaller 
dejDarture in essence. 

And it deserves to be noted that the largest tax 
of modern times, even in the most highly organized 
societies of Europe, the obligation of compulsory 
military service, is assessed and collected on j)recise- 
ly this princix3le. In nearly all the empires and king- 
doms of Continental Europe the requirement of 
j)ersonal service for an equal period presses alike on 
rich and poor, high and low. Exemptions are indeed 
allowed, but always on the theory that the persons 
exempted will in reality serve the state more to its 
advantage by remaining in their ordinary ]3rofes- 
sional capacities. 

435. The Faeulty Tax Impracticable.— But while the 
tax on Faculty is the ideal tax, it has usually been 
deemed impracticable as the sole tax in a highly 
complicated condition of industrial society. As oc- 
cupations multiply and the forms of production be- 
come diversified, it is found that the state cannot to 
advantage call upon each member by turns to serve 



TAXES ON REVENUE. 379 

in person for a definite portion of eacli clay or of tlie 
year. Hence modern statesmansliip lias invented 
taxes on expenditure, on revenues, on capital, not as 
theoretically just, but with a view to reduce the 
aggregate burden on the community, and to save 
production and trade from vexation and obstruc- 
tion. 

436. We Recur to the Tax on Revenue.— The politi- 
cians of the existing order, as we have seen, shrink 
from the effort involved in levying the public con- 
tributions entirely, or even chiefly, according to 
faculty. Next in point of political equity comes 
the tax on incomes, or the revenues of individuals. 
That tax, as it stands in contemi)lation of the writer 
on finance, is a tax on the revenues of all classes, 
with exception only of the amount requisite for the 
maintenance of the laborer and his family, after the 
simplest possible manner, in health and strength to 
labor. It is not a compensatory tax, constituting a 
part of a system in which realized wealth and 
various forms of expenditure are also brought 
under contribution, but the sole tax imposed by the 
state. 

437. Exemption of the Actual Necessaries of Life.— 
It has been said that from such an income tax the 
necessary cost of subsistence must be exempted. 
Economically speaking, it is not possible to ta.x an 
income of this class. A man in the receipt of such 
an income cannot contribute to the expenses of gov- 
ernment. That income being only sufficient to in- 
dividual necessities, no part of it can be apx)lied to 
public uses. Should the state, with one hand, 
take any thing from such a person as a taxpayer, it 



380 POLITICAL ECONOMY. 

must, with the other, give it back to him as a 
pauper. 

Conceding the exemption, on purely economic 
grounds, of the amount required for the mainte- 
nance of the laborer's family, one of the most vital 
questions in finance arises immediately thereupon ; 
to wit, shall the excess above this minimum, shall 
the superfluity of revenue, which may be spent or 
saved at the will of the owner, be taxed at a uni- 
form rate, or at rates rising with the increase of in- 
come ? 

438. The Question of Progressive Taxation. — The 
question of progressive or i)rogressional taxation has 
always been one of great interest while the fiscal 
policy of states rested with the weathy and well-to- 
do classes. It is certain to acquire vastly greater im- 
portance as political power passes more and more into 
the hands of the class of small incomes. Upon the 
question of the equity of progressive taxation writ- 
ers on finance are divided: one party holding that any 
recognition of this principle is sheer confiscation : 
the other admitting that progressive taxation may 
be carried to a certain point wdtliout injury either 
to the sense of political justice or to the instincts 
of industry and frugality, some even holding with 
J. B. Say that ' ' taxation cannot be equitable unless 
its ratio is progressive." Both parties agree that 
there is great danger that, under popular impulse, 
progressive taxation may be carried so far as not 
only to violate all the equities of contribution but 
seriously to shock the habits of acquiring and saving 
property. 

The system of progressive taxation prevailed at 



PROGRESSIVE TAXATION, 381 

Atliens. The principle of graduation, or progres- 
sive taxation, was a favorite one with the French 
statesmen of 1798. In 1848, at the Revolution, the 
idea of progressivity was revived. The provisional 
government, in a decree, said: "Before the Revo- 
lution taxation was proportional ; then it was unjust. 
To be truly equitable, taxation must be lorogres- 
sive." 

M. Joseph Garnier, editor of the Journal des Ego- 
nomistes, makes a distinction between progressive 
taxation, properly so called, and progressional 
taxation. There is, M. Garnier holds, a sj)ecies of 
increasing taxation which is rational and discreet, 
to which he applies the term progressional, which 
is held within moderate limits, which is collected 
by virtue of a tariff of duties slowly progressive, 
and which, at the maximum, cannot pass beyond a 
definite portion of the income of the individual. 

Such would be, he says, a graduated tax which 
should demand from a revenue of 500 francs, zero ; 
from a revenue of 600 francs, a something ; from a 
revenue of 700 francs, that something and that 
which in arithmetic we call the ratio of increase ; 
from a revenue of 800 francs, that something and 
twice the ratio ; from a revenue of 900 francs, that 
something and thrice the ratio ; and so on, accord- 
ing to a scale of duties calculated from the lowest 
to the highest, never i^assing a moderate maximum. 
"Thus," he concludes, " taxation can be progressive 
without being confiscatory." 

In Prussia the tax on small incomes, known as 
the Klassensteiier^ is levied on a scale of twelve 
degrees. 



382 



POLITICAL ECONOMY. 



In England the principle of progression has never 
been admitted into the income tax further than is 
involved in the exemption of a certain minimum. 
How the subtraction of a constant amonnt from all 
incomes, and the taxation of the excess at a uniform 
rate, causes the rate on the total incomes to rise, 
from lowest to highest, will apjDear from the follow- 
ing table. 

439. The Effect of Exemptions.— If we suppose the 
constant amount exempted to be $1,000 and the 
rate of taxation on the excess to be ten |)er cent. , 
incomes of different amounts will in effect be taxed 
as follows : 





Income subject to 




Rate of Taxation on 


Income. 


Taxation. 


Amount of Tax. 


Total Income. 


$1500 


$500 


$50 


3.33-f per cent. 


2000 


1000 


100 


5 


3500 


1500 


150 


6 


3000 


2000 


200 


6.66— " 


3500 


2500 


250 


7.14 


4000 


3000 


300 


7.5 


4500 


3500 


350 


7.77-1- '' 



But while the principle of i^rogressivity has never 
been admitted into the income tax of England, it 
has been extensively applied to the so-called ''As- 
sessed Taxes ; " that is, taxes on carriages, horses, 
servants, etc. 

440. Progressive Taxation in the Future.— That pro- 
gressive taxation will be the demand of the Inter- 
national, as it was of the Eevolutionists of 1793 and 
1848, we already know. That progressive taxation 
will be urged in the spirit of spoliation and confis- 



ACTUAL FORMS OF TAXATION. 383 

cation is most probable. The friends of the existing 
order Avill do well to be prejjared to take their 
ground intelligently and maintain it with firmness 
and temper. 

441. A Tax on Revenue Impracticable as the Sole Tax. 
— While, as the sole tax, the tax on revenue has 
been approved, on grounds of political justice, by 
many, perhaps most, writers on finance, it has, like 
the tax on faculty, generally been rejected as im- 
practicable in view of difficulties in assessment 
affecting incomes both high and low, more indeed 
the higher than the lower, and difficulties of collec- 
tion affecting especially incomes of the lowest class. 

Revenue, or income, having, then, been aban- 
doned generally throughout modern society as the 
sole basis of taxation, and only in exceptional 
cases forming even an important feature of existing 
tax systems, Exjoenditure has been resorted to in- 
creasingly, in the past and present century, from 
considerations not so much of political equity as of 
political and fiscal expediency. By far the greater 
portion of the revenue of the most advanced states 
is derived from taxes on consumption, as they are 
called, and every new demand of the treasury is met 
mainly from this source. 

Yet even now Realized Wealth is still employed 
in many communities as the sole basis of taxation, 
the measure of the obligation to contribute to the 
support of government. It was the preferred form 
of taxation throughout the American colonies, when 
the value of land was small and rents were seldom 
paid by tenant to landlord. It is still the principal 
form of non-federal taxation in the United States, 



384 POLITICAL ECONOMY. 

as the Grand Lists of townships, cities, and counties 
testify. 

442. The Purely Economic Theory of Taxation.— 
Mr. McCulloch, the author of one of the few works 
of value in the English literature of Taxation, 
boldly proposed to abandon altogether the attempt 
to follow out the equities of contribution. "The 
distinguishing feature of the best tax," he said, 
"is not that it is most nearly proportioned to the 
means of individuals, but that it is most easily 
assessed and collected, and is, at the same time, 
most conducive to the public interests." 

The line of reasoning which leads up to Mr. 
McCulloch' s conclusion may be stated as follows : 
Government springs from injustice, and, in the con- 
stitution of things, must commit more or less injus- 
tice. It is of no use to attempt to pursue the 
equities of contribution ; they will elude you. It 
is admitted that it is impossible to distribute equally 
the benefits of government ; why make the hopeless 
effort to apportion its burdens with absolute justice ? 
Get the best government you can ; maintain it at 
the least exi3ense consistently with efficiency ; and 
collect the revenue for the service by the most con- 
venient, simple and inexpensive means. By under- 
taking to effect an equitable apportionment of the 
burden, through complicated methods or by per- 
sonal assessment, yoa are not only likely to fail ; 
you are certain, at the best, to add to the aggregate 
cost of the service, and are in great danger of gen- 
erating new and distinct evils by disturbing econom- 
ical relations and obstructing the processes of pro- 
duction and exchange. 



DIFFUSION OF TAXES. 385 

443. The Theory of the Repercussion or Diffusion of 
Taxes.— No well-known writer following Mr. McCul- 
loch has, to my knowledge, fully accepted his con- 
clusion that the best tax is not that which is most 
nearly proportioned to the means of individuals, 
but that which is most easily assessed and collected, 
and, at the same time, most conducive to the public 
interests. But while writers on finance have in- 
sisted that the equities of contribution should gov- 
ern in assessment, a belief in the so-called Reper-. 
cussion, or diffusion, of taxes has led economists 
very generally to give their approval to the system 
of indirect taxation, the growth of which forms the 
most marked feature of the fiscal history of the 
present century. 

Let the state, it is said, levy its contribution on 
such articles of general consumption as are most 
easily reached, or on such of the processes of pro- 
duction or exchange as lie most open to view, trust- 
ing to the operation of the laws of trade insensibly 
to distribute the burden over the whole body of the 
population. 

This plea raises the question of the Incidence, i. e. 
the ultimate incidence, of taxation. '' I hold it to 
be true," said Lord Mansfield in his sx)eech on tax- 
ing the Colonies, ' ' that a tax laid in any X3lace is 
like a pebble falling into and making a circle in a 
lake, till one circle produces and gives motion to 
another, and the whole circumference is agitated 
from the center." 

444. How do Taxes Tend to Diffusion ? — This, which 
may be called the Dift'usion-theory of taxation, rests 
upon the assumption of perfect competition. It 



386 POLITICAL ECONOMY. 

is true, to the full extent, only under conditions 
which secure the complete mobility of all economic 
agents."^ So far as any portion of the community 
are impeded in their resort to their best market by 
ignorance, poverty, fear, superstition, misapprehen- 
sion, inertia, just so far is it possible that the burden 
of taxation may rest where it first falls. It requires, 
as Prof. Rogers has said, an effort on the part of the 
person who is assessed to shift the burden on to the 
shoulders of others. 

]^ot only is that effort made with varying degrees 
of ease or difficulty ; but the resistance offered may 
be of any degree of effectiveness : powerful, intelli- 
gent, tenacious, or weak, ignorant, spasmodic. The 
result of the struggle thus provoked will depend on 
the relative strength of the two parties ; and as the 
two parties are never precisely the same in the case 
of two taxes, or two forms of the same tax, it must 
make a difference upon what subjects duties are laid, 
what is the severity of the imposition, and at what 
stage of production or exchange the contribution is 
exacted. 

It is not, it never can be, a matter of indifference 
when, where, and how taxes are imposed. ''The 
ability to evade taxation," writes M. Say, "is in- 
finitely varied, according to the form of assessment 
and the position of each individual in the social sys- 
tem. ]N"ay, more, it varies at different times. There 
are few things so unsteady and fluctuating as the 
ratio of the pressure of taxation upon each class, by 
turns, in the community." 

* See Pars. 278-281. 



DIFFUSION OF TAXES. 387 

445. M. Say's Views.— It has always seemed to me 
strange tliat J. B. Say should be cited, as he 
so often is, as an authority on the side of the diffu- 
sion-theory of taxation. Not only in the paragraph 
from which I have quoted does he recognize the vital 
importance of the right "seating" of taxes ; but in 
his references to the essay of Canard, which had been 
crowned by the Academy, he is even more pro- 
nounced. Canard had said that it is of little im- 
portance whether a tax press upon one branch of 
revenue or another, provided it be of long standing, 
because every tax in the end affects every class of 
revenue ]3roportionally, as bleeding in t\\e arm re- 
duces the circulating blood in every portion of the 
human frame. To this M. Say rejoins that the object 
taken for comparison has no analogy with taxation. 
The wealth of society is not a fluid, tending contin- 
ually to a level. It is, the rather, an organism like 
a tree or a man, no part of which can be lopped off 
without permanently disflguring and crippling the 

whole. 

446. M. de Parieu's Views.— M. de Parieu has given 
a chapter of his great work to the Incidence of Tax- 
ation. In respect to what he calls taxes levied upon 
the conditions of every human existence, he reaches 
the result that they have effects very obscure, and 
in a still greater degree subject to dispute. Where 
taxes are levied in cities upon the necessaries of life, 
he finds no considerable danger of evil effects, since 
there is a constant intercommunication between the 
laborers of towns and those of rural districts, and 
migration will soon restore the equilibrium after the 
disturbance created by the new impost. It is other- 



388 POLITICAL ECONOMY. 

wise when a new tax is imposed throughout the whole 
extent of a country. The emigration of laborers to 
foreign parts is only accomplished against a certain 
resistance, arising out of their habitudes and af- 
fections. It is always, moreover, accomplished at a 
definite loss and an indefinite risk. To throw taxes 
on consum 23tion back upon the capitalist or the em- 
ployer becomes, in M. de Parieu's judgment, a task 
very diflScult and often wholly impracticable. 

447. Conclusion.— I reach the conclusion that, in a 
condition of imperfect comiDetition, we have no as- 
surance that indirect taxes will be diffused equably 
over the whole community leaving each class and 
each individual in the same relative condition as 
before the imposition. Something less, it may be 
much less, than a proportional contribution must re- 
sult from the differing strength and opi^ortunities of 
the several classes and individuals. 

The legislator cannot, then, adopt the comfortable 
doctrine of the indifference of the place and the 
person where and on whom the burden shall be laid. 
His responsibility abides for the ultimate effects of 
the taxes he imposes. Whether with reference to 
the equities of contribution or to the general inter- 
ests of trade and production, he is bound carefully 
to consider the nature and. probable tendencies of 
every projected impost. 

XL 

PROTECTION ys. FEEEDOM OF PEODUCTION. 

448. TheDoetrine of Laissez-Faire.— The question of 
Protection, as against Freedom of Production — not, 
as it is commonly stated, against Freedom of Trade 



" LAI88EZ-FAIRE:' 389 

—is rarely discussed, on both sides, upon purely 
economical principles ; perhaps has never been, in 
an actual instance, decided without the intermixture 
of political or social considerations. 

The arguments of those who have favored the pol- 
icy of so far limiting the territorial division of labor 
(see par. 55), as to constitute industrial entities cor- 
responding to existing political entities (which I 
take to be the real intent of what is called Protec- 
tion) have been of every degree of vagueness ; but it 
seems to me that the confusion of the public mind 
need not have existed, at least to so great an extent, 
had not the professional economists taken what I 
cannot help regarding as an unjustifiably lofty atti- 
tude on this subject, practically refusing to argue the 
question at all as one of national expediency, con- 
tenting themselves with occupying the high ground 
of Lai s s ez- Fair e."^ 



*•' Now I beg you to remark the strange assumptions that underlie 
this reasoning. Human interests are naturally harmonious ; there- 
fore we have only to leave people free, and social harmony must re- 
sult; as if it were an obvious thing that people knew their interests 
in tiie sense in which they coincide with the interests of others, and 
that, knowing them, they must follow them ; as if there were no such 
things in the world as passion, prejudice, custom, esprit de corps, 
class interest, to draw people aside from the pursuit of their interests 
in the largest and highest sense. Here is a fatal flaw on the very 
threshold of Bastiat's argument ; and it is a flaw which no follower 
of Bastiat has repaired— which for my part, I believe to be irrepara- 
ble. Nothing is easier than to show that people follow their interest, 
in the sense in which they understand their interest . But between 
this and following their interest in the sense in which it is coinci- 
dent with that of other people, a chasm yawns. That cJiasm in the 
argument of the laissez-faire school has never been bridged. The advo- 
cates of the doctrine shut their eyes and leap over it." Prof. J. E. Cairnes. 
[See also par. 290.] 



390 POLITICAL ECONOMY. 

Now the doctrine of laissez-faire, alfhougli estab- 
lished by the English economists to their own satis- 
tion. as containing a principle of universal applica- 
tion, and thus deemed by them a conclusive answer 
to all arguments specially directed to justify restric- 
tions upon international trade, has never been ac- 
cepted, in the fullness of significance by them given 
it throughout any wide constituency, not even by 
any large proportion of the educated classes, not 
even generally by publicists, or statesmen, or men of 
affairs. 

449. Freedom the Rule ; Restraint the Exception.— 
Although the necessity of making exceptions to the 
rule of freedom of individual action has been 
established as completely in respect to industry as 
in respect to politics, freedom of action is yet so far 
the condition of health and iDower and growth, in the 
field alike of politics and of industry, that those 
who propose to make exceptions in either are bound 
to show cause for every such exception ; a heavy 
burden of proof rests upon them ; their case is to be 
made, and made against a powerful presumption in 
favor of liberty, as that condition which has the 
promise not only of that which now is, but, in a 
higher degree, of that which is to come. 

There is not and there can never be any positive 
virtue in restraint ; its only office for good is to pre- 
vent waste and save the misdirection of energy. 
There is no life in it and no force can come out of it. 
That which is called ''protection" ox)erates only by 
restraint ; it has andean have neither creative power 
nor healing efficacy. All the energy that is to j)ro- 
duce wealth exists before it and without respect to 



'' pbotegtion:* 391 

it ; and just to the extent to wMch protection ope- 
rates at all, it operates by impairing tliat energy 
and reducing the sum of wealth that might be pro- 
duced if protection did not exist. 

I say, that might be produced, not that loould be 
produced. The latter point may fairly be disputed 
between the free-trader, who should rather be called 
the free-producer, and the advocate of the system 
of restricted production. The channel of the river 
adds nothing to the force with which the water 
within its banks tends to its level. On the contrary, 
that force is reduced by the friction between the 
flowing water and the sides of the channel. Yet it 
is water confined in rivers, and not water spreading 
widely over the fields, which yields power to manu- 
facturing industry. The force of the steam at the 
piston- head is less than the force of the steam in the 
boiler, less by all that is necessary to conduct it 
thither from the boiler ; yet it is the force of the 
steam at the piston-head, and not where it is gener- 
ated, which moves the engine. 

450. What the Protectionist has to Prove.— If the pro- 
tectionist can show that restraints imx30sed by law 
upon the industrial action of his countrymen, or the 
men of any country he chooses to take for the pur- 
poses of the debate, have the effect, not, indeed, to 
generate j)roductive force, for that is imx)ossible 
and it would be absurd to allege it, but to direct 
the productive force generated by human wants 
setting in motion human labor, to act upon' the 
natural agents of production with a better actual 
result than under the rule of freedom, he v/ill make 
his case. 



392 POLITICAL ECONOMY. 

,451. Why Should Industrial Correspond to Political 
Entities ?— In proceeding to establish the importance 
of checking the extension of the territorial division 
of labor at the boundary lines of nationality, the 
protectionist writers have been seriously embar- 
rassed from the lack of reasons to give why indus- 
trial entities ought to correspond to political entities. 
A good deal might be said upon the theme that 
the world-wide extension of the principle of the 
division of labor needs to be crossed and checked 
by artificial obstructions to prevent certain eco- 
nomic and social evils. We have shown (Pars. 187- 
201) that grave industrial mischiefs may originate 
in this principle, through which producer and con- 
sumer are set apart, often by a vast distance, some- 
times by half the circumference of the globe ; that 
misunderstandings may arise between j^roducer and 
consumer which will result in a smaller production 
of wealth, a lower satisfaction of human wants, and 
that these misunderstandings are sometimes aggra- 
vated by suspicion or panic with the most deplora- 
ble consequences. The fact is incontestable. Every 
great gain is accomplished at the expense of some 
loss, small or large. 

452. But when the attempt is to prove that the 
principle of the division ot labor should be 
allowed to extend itself freely within the bounds 
of nationality but not beyond them, difficulties 
of a grave character are encountered at the out- 
set, in the great and, from the economic point 
of view, altogether unaccountable irregularity and 
whimsicalness with which the surface of the earth 
is divided among independent sovereignties. One 



*' protection:* 393 

nation comprises two millions of inhabitants, like 
Denmark, Greece or Chili ; another ten, like Mexico, 
Brazil, or Siam ; another thirty, like Italy or Japan ; 
another fift3^ like the United States ; another eighty, 
like Rnssia ; another three hundred and fifty, like 
China. The territory occupied by one nation crosses 
and includes two, three, or five great river systems ; 
in other cases, one river system embraces the terri- 
tory of two, three or fiv^e nations. A stream which 
a boy can wade may form the dividing line of two 
independent States ; a third State may collect its 
revenues acl-oss the Atlantic and the Pacific oceans, 
and its magistracy send their warrants alike to 
Hudson's Bay and into the South Sea. One peox)le 
maj^ stretch from North to South across sixty 
degrees of latitude ; another from East to West, 
through half the daily journey of the sun. One 
country may be occupied by a population as homo- 
geneous as the inhabitants of some old city ; while 
under the same flag, and subject to the same laws 
may live the representatives of nearly every race of 
men known to ethnology. 

453. The United States as an Instance.— It will read- 
ily appear that the protectionist waiters have a diffi- 
cult task in establishing the necessity of drawing 
the lines of industrial circumvallation along the 
boundaries of empire. 

Take the United States for example. Here are 
thirty-eight States trading among themselves with 
the utmost activity, the exchange of commodities 
and services being as free as the movements of the 
air ; and in this freedom all good citizens rejoice. 
But this condition of things is made, by the 



394 POLITICAL ECONOMY. 

doctrine under examination, to be dependent en- 
tirely upon tlie political relations of these States. 
Were tliey under different governments, the ex- 
change of commodities and services which now pro- 
motes the general wealth and the general welfare 
would be fraught with mischief and possible ruin. 

But for the treaty of 1783, trade between Illinois 
and Wisconsin, on the east bank of the Mississi]3pi, 
and Missouri and Iowa, on the west bank, would be 
prejudicial to some or all of the parties engaged. 
But for the treaty of 1819, the commercial dealings 
of Florida and Georgia, now a subject of congratu- 
lation so far as they extend, would be the proper 
object of dread and repugnance to one or both of 
these States. But for the Mexican war, the ex- 
change of products between California and New 
York would properly be prohibited, on one side or 
both, or, if not i)rohibited, placed under onerous 
restrictions. 

To-day free communication between the United 
States and Mexico is only advocated by " theorists," 
who fail to appreciate the importance of protecting 
American labor against the pauperized labor of the 
indolent Spanish American, i.e., protecting the 
strong against the weak. Were Mexico annexed, 
the abolition of all restraints upon intercourse would 
be the first duty of Congress. A reciprocity treaty 
with Canada as a part of the British dominions is 
esteemed injurious to Maine, Vermont and Massa- 
chusetts ; but free trade with Nova Scotia, Quebec 
and Ontario as States of the Union would be a wel- 
come boon to New England. 

It is, of course, possible that some new analysis 



PROTECTING THE STRONG. ' 395 

of the conditions of production may yet disclose the 
law which thus makes trade within the limits of 
sovereignty beneficial, and trade across the bound- 
aries of separate states deleterious to one or both 
parties. 

454. Protecting the Strong against the Weak.— I have 
spoken of the alleged necessity of protecting the 
strong against the weak. In the okl world, the ar- 
gument for protection is based on the importance of 
protecting the industrially weak against the indus- 
trially strong; Russia strives to protect her labor 
against the far better paid labor of Germany ; Ger- 
many, in turn, strives to protect her labor against 
the vastly better paid labor of England. Among ail 
fully settled countries, the rule, without excej^tion 
so far as I am aware, is that that country in which the 
higher wages are paid offers its products at lower 
prices than the comj)eting products of countries 
where the lower wages are j)aid. 

In the United States, however, the argument for 
protection has based itself on the assumed necessity 
of protecting the strong against the weak. In Aus- 
tralia and Canada it is the same. It is alleged to be 
essential to the maintenance of the high wages x)re- 
vailing in these countries, that the products of the 
' ' pauper labor of Europe ' ' shall not be sold freely 
in their markets. 

Why is it that the plea of those who desire to 
check the extension of the division of labor on the 
lines of nationality, suddenly changes from the 
necessity of protecting the weak against the strong 
to the necessity of protecting the strong against the 
weak, as we pass from old and fully settled countries 



396 POLITICAL ECONOMY. 

to countries but recently, and perliaps still but par- 
tially, occupied and cultivated ? 

455. Why Wages are High in New Countries. — The ex- 
planation is found in tlie fact that the populations 
of what we call "new countries," that is, countries 
where an inadequate population is api3lying pro- 
gressively to f^'esh fields advanced methods and ma- 
chinery, possess an immense advantage in the con- 
ditions of living over the populations of "old coun- 
tries," where the land has long been fully occupied, 
where the capabilities of the soil are heavily taxed 
to furnish subsistence to its inhabitants, and where 
systematic, continuous manuring has to be practiced 
in order to keep the land in condition. 

The enormous profit of cultivating a virgin soil 
without the need of artificial fertilization, and the 
abundance of food and other necessaries of life en- 
joyed by the agricultural class have tended contin- 
ually to disparage mechanical industries alike in the 
eyes of the American capitalist looking to the most 
remunerative investment of his savings, and of the 
American laborer seeking the avocation which 
should promise the most liberal and constant sup- 
port for himself and his family. 

456. The Competition of the Farm with the Shop.— 
It has been the competition of the farm with the 
shop which has, from the first, most effectually re- 
tarded the growth of manufactures in the United 
States. A population which is privileged to live 
upon a virgin soil, cultivating only the choicest 
fields and cropping these through a succession of 
years without returning any thing to the land, can 
live in plenty, if not fare sumptuously every day. 



THE UNPROTECTED INDUSTRIES. 397 

If that popnlation possess the added advantage of 
great skill in the use of tools and great adroitness 
in meeting the large and the little exigencies of the 
occupation and cultivation of the soil, tlis fruits of 
agriculture will still further be greatly increased. 

An abundance of nutritious food is and has been, 
ever since the revolutionary period, the sure condi- 
tion of the life of the agriculturist in the United 
States. The pioneers of Western New York, of 
Ohio, and of Wisconsin, never knew, at least after 
the first few years, what it was to lack food, or to 
be obliged to pinch or scrimp in the use of it. 

!N'ow, the mode of living on the part of the agri- 
cultural population has necessarily set a minimum 
standard of wages for mechanical labor. With an 
abundance of cheaj^ land, with a population facile 
to the last degree in making change of avocation 
and of residence, very few native born Americans, 
and comparatively few immigrants are likely to be 
drawn into factories and shops on terms which imply 
a meaner subsistence than that secured in the culti- 
vation of the soil. 

457. The Hand Trades — There are certain classes 
of mechanical x^ursuits, however, which, by their 
nature, secure to those who follow them a minimum 
remuneration fully up to the standard of the agri- 
cultural wages of the region. Such, for instance, 
are the trades of carx^enter, blacksmith and mason, 
in which the work is of a kind which can only be 
done upon the sjDot. 

If, then, the farmer will have such services per- 
formed, he must admit those who perform them to 
share his own abundance j he must pay wages 03: 



398 POLITICAL ECONOMY, 

prices wliicli will attract men, and those, Iby neces- 
sity, men excej)tionally intelligent and skillful, into 
those trades. Hence we find the mason, the plumber, 
the carpenter, the house painter, the cobbler, in every 
part of the United States, receiving wages which 
bear no relation whatever to the wages paid for the 
same class of services in other countries, but which 
stand in a very exact relation to the rewards of agri- 
cultural labor here. 

ISTor has it ever been found necessary to encourage 
or stimulate these trades for the good of the coun- 
try. What statesman ever introduced into Congress . 
a bill intended to increase the number of carpenters 
or blacksmiths, or to enhance their wages ? 

458. Personal and Professional Services. — But, again, 
there are certain classes of services, of a personal or 
professional nature, which have also secured for 
those rendering them a participation in the abund- 
ance enjoyed by the tillers of the soil in the same 
region. The remuneration received by the mem- 
bers of these classes, whether called the w^ages of 
domestic servants, or the fees of physicians and 
lawyers, or the salaries of schoolmasters and clergy- 
men, or the profits of retail trade, has been out of 
all relation to the remuneration of similar services 
in other countries, and has amounted to just what I 
have termed it, a paTticipation in the abundance 
enjoyed hy the agricnltural population. Since 
these services could only be performed upon the 
spot, the agriculturists have been obliged, if they 
would have the services rendered, to pay for them, 
out of the large surplus of their own produce, at 
least enough to make these professions and avoca- 



THE PROTECTED INL USTRIE8, 399 

tions equally desirable with their own, and conse- 
quently, there has never been any call for Con- 
gressional action to secure the requisite number of 
lawyers, physivoians, clergymen, schoolmasters, do- 
mestic servai s or retail tradesmen. 

459. The Fa. tory Industries — But now we note that 
there are stir other important classes of services to 
be rendered, respecting which the rule changes. 

The servios referred to are such as can be per- 
formed witk 3ut respect to the location of the con- 
sumer of the product. They are nearly identical 
with what w( call, in the technical sense of the 
term, ma'/ ifactnres. 

Whenever the American farmer wants a pane of 
glass set, )v a pair of boots mended, or ahorse shod, 
he must pay some one of his neighbors enough for 
doing the job to keep him in his tra^de and to keep 
him out of agriculture, in the face of the great ad- 
vantages of tilling the soil in JN'ew York, or Ohio or 
Dakota, or wherever else the farmer in question 
may live ; but how much he shall pay the man who 
makes the pane of glass, or the pair of boots, or the 
set of horseshoes, will depend upon the advantages 
of tilling the soil, not where he himself lives, but 
where the maker of horseshoes, of boots, or of glass 
may live. 

If he will have the work done he must pay some 
one, somewhere, enough to keejD him in his trade 
and out of agriculture ; but not necessarily out of 
New York agriculture, or Ohio agriculture, or Da- 
kota agriculture ; but, j)erliaps, out of English agri- 
culture, or French agriculture, or Norwegian agri- 
culture, such as that may be, with the advantages, 



400 POLITICAL ECONOMY, 

no less and no more, there enjoyed by the cultiva- 
tors of the soil, under the requirement of constant 
fertilization, deep plowing and thorough drain- 
age, and subject to that stringent necessity which 
economists express by the term, " the law of Dimin- 
ishing Returns." 

460. Now, to offset and overcome the inducements 
to engage in agriculture, even in Merry England, is 
a different thing, a very different thing, from keep- 
ing a man in his trade and out of agriculture in the 
United States. 

I have already quoted Prof. Fawcett as saying 
that it is impossible for the agricultural laborer in 
the West of England to eat meat more than once a 
week. The American who works upon the land eats 
meat twice a day, and freely at that. 

The American agriculturist, having large quanti- 
ties of grain and meat, of cotton and tobacco, left 
on his hands, after providing ample subsistence for 
his family, and even after hiring the carpenter, ma- 
son and blacksmith, the schoolmaster, lawyer and 
doctor, for as much time as he requires their re- 
spective services, and still further, after putting a 
good deal into farm im^Dlements and increase of 
stock, is desirous of obtaining with the remainder 
sundry articles more or less necessary to health, 
comfort and decency. To him, it makes no differ- 
ence whether the articles he requires are made on 
one side of the Atlantic or on the other ; but it 
makes a great difference what he is obliged to pay 
for them ; how much of his surplus grain and meat, 
tobacco and cotton must go to securea certain defin- 
ite satisfaction of his urgent and oft-recurring 



THE OUTCOME OF PBOTEGTIOH^. 401 

wants. If he must needs pay some one to stay out 
of American agriculture and do this work, his sur- 
plus will not go so far as if he were allowed to pay 
some one to stay out of English agriculture to do it. 

461. What the State Can Do.— But here the State 
enters and declares that it is socially or politically 
necessary that these articles, these nails, these 
horseshoes, this cotton or woolen cloth, or what not, 
shall be made on this side of the Atlantic, and not 
on the other. That necessity the agriculturist, as 
consumer, cannot be exj^ected to feel ; he does not 
care where the things were made ; he only wants 
them to use. He does not care who makes them ; 
he does not even care whether they are made at all ; 
they would answer his purpose just as well were 
they the gratuitous gifts of nature, spontaneous 
fruits of the soil, or the sea, or the sky. He will 
not, of his own motion, x)ay more for an article be- 
cause it is made on his side of the Atlantic than he 
could get an equall}^ good article for, bearing the 
brand of Sheffield or Birmingham or Manchester. 

But if the State says he must, he must ; and con- 
sequently the American maker of this article is by 
force of law admitted to a participation in the 
abundance enjoyed by the American agricultural 
class. The tiller of the soil is now compelled, by 
the ordinance of the State, to share his bread and 
meat with the maker of nails or of horseshoes, of cot- 
ton or of woolen cloth, just as he was before com- 
pelled, by the ordinance of nature, to share his bread 
and meat with the blacksmith, carpenter and mason, 
the schoolmaster, lawyer and doctor. 

It is perfectly true, thereforej as the protectionist 



402 POLITICAL ECONOMY, 

asserts, thai a tariff of customs duties "upon foreign 
goods imported into new countries may create and 
maintain high rates of wages in the factory indus- 
tries. But for protective duties, those articles 
which, in their nature, can be readily and cheaply 
transported will be produced predominantly in 
countries where the minimum standard of mechan- 
ical wages is set by agricultural conditions far less 
favorable than those which obtain in the United 
States, in Canada, or Australia. 

But while the law may thus create high rates of 
wages in factory industries, it does not and it 
can not create the wealth out of which that excess 
of manufacturing wages over those of older coun- 
tries is paid. That wealth is created by the labor 
and capital employed in the cultivation of the soil. 



The End. 



INDEX. 



p 



INDEX. 



[The References are to Paragraphs— Not to Pages.] 



> 



Argyle, Duke of: restrictions on 
the contract for labor, 206 

Arithmetical vs. Geometrical pro- 
gression, 328 

Alt: Political Economy as an art 
(a branch of statesmanship) 
distinguished from political 
economy as a science, 12 

Assignats, so called, of the French 
Revolutionary period, 167 

Athens, progressive taxation in, 
438 

Authority, legal, excluded from 
our definition of value, 4 

Ability, as the rule of taxation. 
423. [See, also. Faculty.] 

Abstinence, the creator of capi- 
tal, 64; interest, the reward of 
abstinence, 235 

Accumulation, how influenced 
by the. rate of interest, 237 

Agriculture — deemed by the phy- 
siocrats the sole source of 
wealth, 24; subject to the con- 
dition of "diminishing re- 
turns," 25-29; plea that manu- 
factures- should be built up 
artificially to save exportation 
of the properties of the soil, 
32-34 ; follows the pastoral 
condition in natural order of 
development, 39; the fluctua- 
tions in agricultural products 
render them a defective stand- 
ard for deferred payments, 
148-149; competition of agri 
culture with manufactures in 
new countries, 455-461 

Alcoholic beverages, English ex- 
penditures upon, 346 



Amsterdam, bank of, 356 

Bacon, Lord: on usury, 351-352 

Bagehot, Walter: influence of 
inconvertible paper money on 
foreign exchanges, 179; the 
early Italian banks, 355; bi- 
metallism, 405 

Banking Functions, the, 355- 
361; the banking agencies, 362 

Banking principle, the, so- 
called, vs. the currency prin- 
ciple, 184-186 

Bank Money, Chap. 6, Part III; 
also, 361 

Bank of England ; its circulation, 
185 

Bases of Taxation, 426 

Bastiat, F. : the story of Jacques 
Bonhomme, 342 

Barter, the primitive form of ex- 
change ; involves a double 
coincidence of wants and of 
possessions, 121 

Belgium, underfed laborers, 44 

Bentham, Jeremy : escheat mce 
taxation, 415 

Bequest. [See Successions.] 

Bi-Metallism, 396-407 

Birth rate, diminished by in- 
crease of economic desires, 328- 
331 

Brabazon, Lord: inadequate food 
of French factory hands, 44 

Brassey, Thomas: superiority of 
English labor in railway con- 
struction, 51 

Building lots, rent of, 231 

Bullion, its relation to coin, 152- 
166 



406 



INDEX. 



Y 



i 



Burke, Edmund: the fiscal mo- 
tive to paper money issues, 
394 

(Jairnes, John E, : The character 
and logical method of Political 
Economy, 11; obstacles which 
political economy encounters 
through its close affinity to the 
moral sciences, 17; importance 
of the law of "diminishing 
returns," 25; his theory of non- 
competing groups, 118, 277; 
/aissez-faire, 290, 448 ; bi-metal- 
lism, 405 

Calvin, John, on usury, 349 

Cameralistic science, its subject 
matter, 294 

Canard, N. F. : the diffusion of 
taxes, 445 

Cancellation of indebtedness, by 
banks and clearing houses, 
357 

Capability, productive, of a 
community, Chap. 4, Part II; 
cf.. Chap. 7, Part III; Chap. 
7, Part IV; Chap. 4, Part V 

Capital, Chap. 3, Part II ; par- 
tial immobility of capital, 73; 
the remuneration for its use, 
^. e., interest, Chap. 3, Part 
IV 

Catallactics, the word offered by 
Archbishop Whately, as a sub- 
stitute for political economy, 
19 

Celibacy. [See Marriage.] 

Chastity, female, how affected 
by the provisions of the En- 
glish poor laws , 411 

Cheap money, is inconvertible 
paper money cheap'!' 173-175 

Cheerfulness, as contributing to 
labor power, 49 

Chevalier, Michel: money econo- 
mizes labor, 124; effects of an 
increase of the money supply, 
395; bi-metallism, 405 

Child, the, its relation to the 
subsistence of the family, 317 

Civilization, its influence upon 
the sum of values, 8; effects of 



money in promoting civiliza- 
tion, 124 

Clearing-house, the bankers' bank 
357 

Clothing, its relation to subsist- 
ence, 314 

Coinage, 128-139; cost of, ^. e., 
seigniorage, Chap. 4, Part III 

Coin basis of bank money, [See 
Reserve, Specie.] 

Coin, debasement of; seignior- 
age. Chap. 4, Part III 

Combination, in economics op- 
posed to competition, 94 

Comfort, ideas of, developed in 
the progress of society, 326- 
329 

Commodities, distinguished from 
services, 205 

Competition defined, opposed to 
combination, also to custom 
and to sentiment, 93 ; Prof 
Cairnes' non-competing groups, 
118; relation of the theory of 
competition to the doctrine of 
rent, 223-229; relation of com- 
petition to the doctrine of in- 
terest, 245-248 ; to the doctrine 
of wages. Chap. 5, Part IV, 
also, 370-378 

Competition, failure of, 227-229; 
246-248; 274-281; 370-371 

Consumers and producers, possi- 
sible misunderstandings be- 
tween. Chap. 7, Part III 

Consumption of wealth: a de- 
partment of political economy, 
311-2, Part V, passim 

Consumptive vs. productive co- 
operation, 366-368 

Continental currency, so-called, 
of the American revolution, 
167 

Contributions to the treasury of 
the State, 414; (compulsor^-^: 
see Revenue of the State and 
Taxation.) 

Co-operation:, an effort to get rid 
of the entrepreneur, 77 ; antic- 
ipated benefits of, 363-365; 
practical difficulties, 366-369 

Corn rents, 150 



INDP^X. 



407 



Corners, so-called, as a tool of the 

speculating class, 301 
Credit sales, their characteristic, 
146; their great importance in 
modern excliange, 147 

% Crises. [See Paoics.] 

' Cultivation, descending to in- 
ferior soils. [See Diminishing 
Returns.] 
Currency principle, tlie, so-called, 
m. the banking principle, 184- 
186 

. Custom is always, in theory, op- 

/( posed to competition, 94; its 
effects on price, 107 

X Darwin, Charles: the power of 
' geometrical increase, 324 

Delbasement of the coin. Chap. 3, 
Part III 

Debtor class, their demand for 
paper money issues, 395 

Decency, regard for: its power 
to check population, 331 

Deferred payments, standard of. 
[See Standard, etc.] 

Definitions, difficulty which polit- 
v' ical economy encounters from 
^ the use of terms taken from 

common speech, 19 
•y Degradation of the laboring class, 
rv through unequal competition, 

280, 371 
■^ Demand and supply defined, 93 

Demand for Money, 171 

Demand, international, equation 
of, 117 

Denominator of values, 142; how 
about paper money? 169 

Departments, the four depart- 
ments of political economy, 20 

Deposits, fictitious, as a means of 
evading usury laws, 352. [See 
Safe Deposit.] 

Deposit and Discount, the great 
banking function, 360 

Depreciation, not a necessary re- 
sult of debasement of coin, 161; 
or of inconvertibility of paper, 
172 

Desires, economic, tend to mul- 
tiply as fast as gratuity replaces 



value in the case of articles 
which were the subjects of for- 
mer desires, 8, 63 ; Part V. 

Destruction of wealth, keeping 
down accumulations of capital, 
79; popular notion that it stim- 
ulates production, 341 

Deterioration, liability to, as af- 
fecting price, 105 

Devon, Earl: Irish Commission 
of 1844, 325 

Diet, diversified, taste for, as an- 
tagonizing the procreative 
force, 329 

Diffusion of taxes, 443-447 

Diminishing returns in agricul- 
ture, 24-30, 69, 214 

Discount and deposit, the great 
banking function, 360 

Discredit of money, its influence 
on the money demand, 132 

Distribution, as a department in 
political economy. Chap. 1, 
Part IV 

Division of labor. [See, also. 
Territorial Div. of Lab.], how 
it originates, 53 ; how it be- 
comes a SDurce of productive 
power, 54; gives rise to ex- 
change, 81, 119; evil possibili- 
ties attendant upon, Chap. 7, 
Part III 

Domains, as a source of revenue 
to the State, 417 

Dress, as a form of consumption, 
314 

Dynamics of wealth, found in 
consumption, 347 



Economics. [See Political Econ- 
omy.] 

Efficiency of the individual la- 
borer, dependent on several 
causes, 40-49 ; varying effi- 
ciency of labor in different 
countries, 51 ; relation to wages, 
273 

Emigration of capital, 248; of 
labor, 274-276 

Employer, the. [See Entrepre- 
neur.] 



40$ 



INDEX. 



Employment, regularity of, as an 
t^ element in wages, 267 
\a Employed laborer. [See La- 
borer,] 

England, insufficient food of 
agricultural laborers, 44; con- 
trasted with India and Russia 
as to the efficiency of its labor- 
ing population, 51; its indus- 
trial organization, 209; rents 
kept down by public sentiment, 
235 ; birth rate, 331 ; its usury 
laws, 350; its strikes and trades 
unions, 372; factory legisla- 
tion, 377-78; poor laws, 408- 
411; progressivity in taxation, 
438 

Entrepreneur class, the, their 
function, 75-76 ; as claimants 
to a share of the product of in- 
dustry, 209; Chap. 4, Part IV; 
363-369 ; the State as entrepre- 
neur, 418 

Equation of international de- 
mand, 117 

Equity, political, its relation to 
political economy, 15 

Equities of contribution to the 
State, 423-434. [See also Taxa- 
tion.] 

Escheat, as a source of State rev- 
enue, 415 
/Esprit de corps in industry, 56 

Ethics, relation to economics, 15 
/-Exemptions frOm income, prior 
to taxation, 437 

Exchange, arises from the divis- 
ion of labor, 81; its reaction 
upon production. Chap. 7, 
Part III 

Exchange, as a department of 
Political Economy, Part III; 
how distinguished from distri- 
bution, 205-206 

Exchange : Foreign, or Inter- 
national, 179 ; par of ex- 
change, 358 ; between gold- 
using and silver-using coun- 
tries, 401 

Exhaustion of the soil, 32 

Expenditure, as the basis of taxa- 

., tion, 429-432 



Factory laws, 206, 376 

Faculty, as the basis of taxation, 
433-435 

Family, the formation of, 316- 
317; solidarity of , 320 

Fawcett, H. : insufficient food of 
West of England laborers, 44; 
differing wages in different 
localities, 276 

Fees, as a means of public 
revenue, 420 

Feudal burdens on land, how 
commuted ? 386 

Fiat money. [See Inconvertible 
Paper Money.] 

Final utility, 95-99 

Financiering, as a banking func- 
tion, 355 

Fines and forfeitures, as a source 
of revenue to the State, 416 
^Fittest, survival of. [See Sur- 
vival.] 

Food. [See, also, Subsistence]: 
Its relation to labor power, 42; 

\y the primary form of capital, 
68; its relation to population, 
Chap, 1, Part V, also Par. 
332 

Force, productive, cannot be lost 
out of nature, but may be lost 
out of man's reach, 32 

Forced circulation, generally a 
characteristic of government 
paper money, 167 

Forced sales, sometimes caused 
by usury laws, 352 

Form-value, 22 

France: underfed factory hands, 
44 : birth rate, 331 ; progres- 
sivity in taxation, 438 

Francis, John : the city banks of 
London, 359 

Free, distinguished from gratui- 
tous coinage, 155 

Free trade and exhaustion of the 
soil, 32; free trade and the ter- 
ritorial division of labor, 55, 
448-461. [See Protection m. 
Freedom of Production.] 

French economists apt to confuse 
ethical and economical reason- 
ing, 15 



INDEX. 



409 



\r 



Gangs, agricultural, so-called, in 
England (children), 277 

Garnier, Joseph: progressivity in 
taxation, 438 

Genoa, bank of (St, George), 355 

Geometrical vs, arithmetical pro- 
gression, 323 

George, Henr}'- : his " Progress 
and Poverty," 387 

Germany, its railroad system, 
418 

Gilbert's Act(English Poor Laws), 
410 

Glut. [See Overproduction.] 

Gold. [See Precious Metals; in 
its relations to Silver, see also 
Bi-metallism.] 

Government, as producer and 

consumer, 292-293, 334-335 ; 

^v/'its revenue and the means of 

'^ obtaining it, 414-421 

Government administration of 
productive property, 389, 417- 
418 
y. Grain, as money, 148-150 

Gratuity, relation to value, 7-8 

Gratuitous, distinguished from 
free, coinage, 155 

Greed, often antagonistic to the 
enlightened pursuit of wealth, 
rebuked by political economv, 
3; needs at times to be held in 
check by law, 376-378 

Greenbacks, so-called, of the 
United States, 167, 170 
"^v Gresham's Law, 141 - 

Ground rents, 231 ; to be dis- 
tinguished from the remunera- 
tion of the sums expended in 
building and improvements, 
233 

J><^ Hard times, so-called, their cause, 

192-201 
Harmonies, the economic, 79-81 
Hastings, George W. : necessity 

of the workhouse test, 413 
7<C Hazardous risks of capital, how 

compensated, 241-244 
Health is not wealth, though 

better than wealth, 5 
Hearu, Wm. E. : substitutes the 



;< 



term Plutolog)'" for Political 
Economy, 19; the former idle- 
ness of the Scottish people, 50 

Hebrews, ancient, usury for- 
bidden, 349 

Hoffmann, J. G. : the literature 
of taxation, 422 

Holland, underfed laborers, 44 

Hopefulness in labor, as an \/- 
element of productive power, /\ 
49 

Hunter state, the, 36 

Huskisson, Wm.: repeal of the 
laws against combinations, 372 



Immobility of capital and labor. 
[See Mobility, etc.] 

Income as the base of taxation. 
[See Revenue.] 

Inconvertible Paper Money, 
Chap. 5, Part III 

Increment, the unearned, of land, 
234, 379-389 

India — the efficiency of its labor- 
ing population contrasted with 
that of the English, 50; period- 
ical famines, 65, 325 

Indifference of the rate of profits, 
a doctrine, 289 

Inflation (money), 164, 177- 
178 ; tendency to inflation in- 
hering in political money, 391- 
392 

Injuries, economic, tend to re- 
main, 281 

Institutions, how far shall they be 
considered by the economist ? 
11 

Insurance of the principal, an 
important element of interest, 
241 

Intellectual elements of supply 
and demand, 109 

Intelligence, not wealth, 5; as a 
source of productive power, 
47-48 

Interest, as a share in the prod- 
uct of industry, 209, 271, 
Chap. 3, Part IV; tends to fall 
in the progress of society, 383. 
[See Usury Laws.] 



410 



INDEX, 



International, the, will favor 
progressive taxation, 440 

International trade, Mr. Mill's 
view of, 113-115 

International values, Mr. Mill's 
theory, 116-117 

International distribution of 
money, 136-138 

International division of labor. 
[See Territorial, etc.] 

Invention facilitated by the di- 
vision of labor, 54 

Ii'elaud : relation of the land- 
lord and the tenant class, 227; 
increase of population and 
state of the peasantry prior to 
the famine, 325 

Irish, their traditional idleness at 
home due to unfair laws, 50 



Jarvis, Edward: varying viability 
of the several nations of Eu- 
rope, 267 

Jevons, W. S. : illustration of the 
descending scale of utility, 95; 
the denominator of values, 142; 
repudiates the doctrine of the 
wages fund, 272 ; the laissez- 
faire doctrine, 286; the dyna- 
mics of wealth, 312; govern- 
ment interference with labor, 
376; bi-metallism, 396-407 

Johnston, J. F. W. : the constit- 
uents of the soil taken away in 

. the crop, 32 



Knies, Prof. : his classification of 
values, as time-value, place- 
value and form-value, 22 



Labor, employed in agriculture 
subject to the condition of di- 
minishing returns, 25-28; not 
so when employed in mecliani- 
cal industries, 29-30 ; as one of 
the three primary agents of 
production; Chap. 2, Part II ; 
•"c^Tarying efficiency of labor, 41- 
«=>51; partial immobility of labor, 



73 ; relation of labor to value<fSD 
88-92 ; the remuneration of ^ 
labor; wages. Chap. lY "^-^ 

Laborer, the, as a claimant to a <^ 
share of the product of indus- 
try, 209, 273 

Laissez-Faire, the doctrine, 282- 
286, 290, 444-447 

Land, its tenure, how far of con- 
sequence to the economist? 11; 
one of the three primary agents 
of production, 24-34; original 
tenure in common, 386 

Landlord, the, as a claimant to a ^^ 
share in the product of indus- 
try, 209; Chap. 2, Part IV 

Latin Union, so-called, its mone- 
tary league, 404 

Laws, how far shall they be con- 
sidered by the economist ? 11 

Leave- them-as-you-find them rule lUx,' 
of taxation, 426 

Liverpool, Lord : ancient bankers, 
355 

Loans. [See Interest and Usury 
Laws. ] 

Lotteries, as a means of revenue 
to the State, 420 

Luxury, its appearance in human 2^ 
societies, 328 



Machinery, great differences 
among different peoples in the 
capacity of using it, 48; intro- 
duction of machinery as tend- 
ing to set producers and con- 
sumers apart, 190 

Malthus, T. R. : the law of popu- 
lation, 322-326 

Mansfield, Lord : diffusion of 
taxes, 443 

Manufactures : not subject to the 
condition of diminisliing re- 
turns, 29-30 ; plea for build- 
ing up local manufactures to 
prevent waste of soil, 32-34 

Market, what is it ? 98 '^ 

Market price, its relation to nor- 
mal price, 100-101 

Marriage : early marriages in Ire- 
land, 325; discouraged by eco- 
nomic desires, 338 



V 



IIWEX. 



411 



'^ 



Marshall, Alfred and Mary Paley. 
Economics of Industry : em- 
ployers in England rising from 
the ranks of lab(^r, 251 

Mastership in production, 57, 75, 
363-369 

Materials, the third form of capi- 
tal, 67 

McCulloch, J. R. : varying fer- 
"■; tility of soils, 211; wages and 
i '• cheap food, 332 ; his view of 

\ governmental expenditure, 334; 

effects of an increase of the 
money supply, 395; proposes 
the purely economic theory 
of taxation, 442 

Measure of value, so-called. [See 
Denominator of Values.] 

Mechanical industry, not subject 
to the condition ojf diminishing 
returns, 29-30 

Medium of exchange, money 
serves as the, 122; how about 

"^ "paper money ? 168 

Metals, as money, 126 

Metals, the precious, as money, 
127 ; the irregularity of their 
production, 149, 403. [See 
also Bi-metallism and Multiple 
Standard.] 

Mill, John Stuart: the friction of 
retail trade, 111 ; his view of 
international trade, 113-115; 
of international values, 116- 
117 ; custom, in economics, 
the protector of the weak, 226 ; 
the unearned increment of 

; land, 234, 382-387 

Mines, rental of, 232 

Mobility of capital and labor, how 
far secured, 73, 275-277 

Money, Chaps. 3, 4, 5 and 6, Part 
III; interest paid, in general, 
for the use not of money, but 
of other forms of capital, 236. 
[See also Bank Money, Incon- 
vertible Paper Money, Political 
Money, Bi-metallism.] 

Monometallism. [See Bi-metal- 
lism.] 

Monopolies, as a source of re- 

. veaue to the State, 419 



Monopoly value, 89 

Moral considerations, how far do 

they concern the economist ? 

11 
Moral elements of supply and de- 
mand, 109 
Mosaical code, prohibits usury, 

349 
Motives, 

taken 

only a 

11 
Multiple 



economic, shall all 
by the economist, or 
few leading motives ? 

standard, for deferred 




payments, 151 

Napoleon, avoided the use of 
paper money, 173 

" National " Political Economy, 
so-called, why should indus- 
trial correspond to political en- 
tities ? 451-453 

Nature, human : how far shall 
the economist seek to compre- 
hend it, and include it in the 
premises of his reasoning ? 11 

Neison, Dr. : var3nng mortality 
of the several trades and pro- 
fessions, 267 

New countries, so-called, why ^/U 
wages are high in them, 455- * 
461 

Nitrification, so-called, as a means 
of renewing the soil subject to 
culture, 35 

Nominal m. real wages, 266-268 W-^ 

Nominal m. real cost of labor, u^^w- 
267 

Non-competing groups: Profes- t^- 
sor Cairnes' theory, 118 

Normal price : its relation to 
market price, 99-101 

North, Dudley : free coinage, 
155 

Occupation, change of, as a 

means of relieving the labor 

market, 277 
Offices, sale of, 416 
One price only for a commodity, ».*-. 

96 
Opinion, public, influence on 

wages, 287 



41 S 



INDEX. 



"Organization of industry, 56 ; as 

affecting price, 106 
Over-production, -what tlie term 

means, 338 
Overstone, Lord: the theory of 

bank money, 185 

Panics, the causes of, 191-203 

Paper Money : [See Bank Money 
and Inconvertible Paper Mo- 
ney.] 

Par of excliange: what it is, 358 

Parieu, E. de : the diffusion of 
taxes, 446 

Pastoral state, the, 37 

Pauperism, 403-412 

Petty, Sir Wm. : his theory of 
taxation, 429 

Physiocrats, the French, deemed 
agriculture the sole source of 
wealth, 24 

Physiology of man, how far of 
consequence to the economist ? 
11 

Picking, or selecting, the coin, 
139 

Place-value, 22 

Plutology, the term offered by 
Prof. Hearn as a substitute for 
political economy, 19 

Political economy, its character 
and logical method. Part I 

Political money, 390-395. [See 
also Inconvertible Paper 
Money.] 

Politics and economics, 283, 375 

Poor laws. [See Pauperism.] 

Population increases as tribes 
pass from the hunter to the 
pastoral state, and again as 
they initiate agriculture, 38- 
39 ; relation of subsistence to 
population. Chap. 1-3, Part V; 
effect of the increase of popu- 
lation in driving cultivation 
down to inferior soils, 25-29, 
69-70, 214, 274 

Potato philosophy of wages, 332 

Practical men, so-called, or self- 
called, their readiness to assert 
their opinions on economic 
questions, 18 



Prejudices, popular, their influ- 
ence on political economy, 17- 
18 ^ 

Premises of political economy, 

Price, relation to value, 85, 133; 
but one price for a commodity, 
96; noi'mal and market price, 
99-101 ; price the agent in the 
international distribution of 
money, 136-7; relation of rent 
to the price of land, 219; to the 
price of agricultural produce, 
220-221; relation of profits to 
the price of manufactured pro- 
duce, 259 

Price current, need of, 143 ; how 
about paper money ? 169. [See 
Denominator of Values,] 

Procreative force, the, its capa- 
bilities, 324 ; its persistence, 
325 ; antagonized by economic 
desires, 328 

Production of wealth. Part II; 
modes of production, 22 ; 
agents of production, 23; pro- 
ductive capability of a com- 
munity. Chap. 4, Part II ; re- 
action of exchange upon pro-- 
duction. Chap. 7, Part III ; re- 
action of distribution upon 
production, Chap. 7, Part IV ; 
reaction of consumption upon 
production, Chap. 4, Part V. 

Producers and consumers, their 
relations and possible misun- 
derstandings, Chap. 7, Part III 

Productive co-operation. [See 
Co-operation] 

Production, cost of, how related 
to value, 88-90 

Profits, of the entrepreneur ; 
a share of the product of 
industry, 209, 272, Chap. 4, 
Part IV ; profits and rent are 
species of the same genus, 
254-259 ; profits do not form 
a part of the price of man- 
ufactured products, 259 ; are 
not obtained by deduction 
from wages, 260 ; in co-opera- 
tion the laborers aim to se- 



C 



UsTDEX. 



413 



cure the entrepreneur's profits, 
363 
Progressive taxation, 438 
Property, relation to wealth, 9 
Protection m. freedom of pro- 
duction, 448-61 
Purveyance, as a means of rev- 
enue, 420 

Quasi taxes, 419-30 
Quesnay, M. , his school of econo- 
mists, 24 

Raguet, Condy : bank money in 
the United States, 88 

Railways of Germany, 418 
-Real m. nominal wages, 266, 268 

Real m. nominal cost of labor, 
268 

Realized wealth, (taxation) [see 
Wealth] 

Redeemability of paper money, 
what it implies, 167, 183-4 

Registration of land, the require- 
ment adds virtually to the 
facility of transfers, 285 

Rent, as a share in the distribu- 
tion of the product of industry, 
370 ; Chap. 2, Part IV; its 
relation to the price of land, 218; 
its relation to the price of 
agricultural produce, 220 ; 
tends to rise with growth of 
population, 383 ; rent and prof- 
its are species of the same 
genus, 254 ; does rent belong 
in equity to tlie community ? 
234, 382-86 

Repe'cussion of taxes. [See Dif- 
fusion, etc.] 

Reserve, specie, of bank money, 
182-3 

Restriction, so-called, the En- 
glish, 167 

Retail trade, the friction of, 
HI 

Revenue (individual), as the basis 
of taxation, 428, 436-41 

Revenue of the State, 414-21 

Ricardo, David : 7 ; treats politi- 
cal economy as a science, not 
as an art, 12 ; expresses a 



necessary qualification of Gres- 
ham's law, 141 ; his views on 
seigniorage, 157-60 ; his rela- 
tions to the doctrine of rent. 
223 ; the incidence of a land 
tax, 385 

Rogers, J. E. T. : rents in En- 
gland, 225 ; the insurreclion of 
the peasantry under Richard 
II, 374 ; the diffusion of taxes, 
444 

Russia, the efficiency of its labor- 
ing population contrasted with 
that of the English, 51 

Safe deposit, as a banking func- 
tion, 359 

Sanitary conditions, as affecting 
the efficiency of labor, 45-46 

Saving. [See Abstinence.] 

Say, J. B. : progressive taxation, 
438 ; diffusion of taxes, 445 

Scarcity value, 89 

Science, distinction between polit- 
ical economy as a science and 
as an art, 12. 

Scotch, the, once an idle people, 
50 

Sea, the, as a source for the sup- 
ply of food to man, 31 

Seasons, their infiueuce on regu- 
larity of emploj^ment, 267 

Seigniorage, Chap. 4, Part III 

Selecting, or picking, the coin, 
139 

Senior, N. W. : relation of value 
to wealth, 3 ; relation of rights 
or credits to wealth, 9 ; dis- 
tinction between political econ- 
omy as a science and as an art, 
12 ; labor not essential to value, 
88 ; opportunities for extra 
earnings, 266 ; the consump- 
tion of wealth, 311 ; what is 
a luxury ? 330 

Sentiment, personal, excluded 
from our definition of value, 4; 
sentiment and political econ- 
omy, 16 ; sentiment as modify- 
ing the influence of competi- 
tion, 94 

Services, distinguished froni 



414 



INDEX. 



X 



commodities, 305 ; services of 
the possessors of health, sl^ill, 
strength and intelligence may 
be the subject of exchange, 
though those qualities can not 
be, 5-6 

Shelter, its relation to subsistence, 
314 

Shocks, economic, their propaga- 
tion through the industrial and 
commercial body, 197-9 

Silver. [See Precious metals in 
its relation to Gold, see, also, 
Bi-metallism] 

Sismondi, M. : rents in Tuscany, 
226 J' ■ 

Skill is not wealth, though it may 
become the means of acquiring 
wealth, 5-6 

Slave labor, the cause of its in- 
efficiency, 49 

Smith, Adam : treated political 
economy mainly as an art, 12 ; 
the guinea,a bill for goods, 144 ; 
bank money, 180-6 ; the immo- 
bility of labor, 275 ; masters 
always in a combination not to 
raise wages, 288, 373 ; the 
stipend class, 295 ; the bank of 
Amsterdam, 356 ; voluntary 
contributions to the State, 414 ; 
inefficiency of government ad- 
ministration of productive 
property, 417-8 ; his maxims 
regarding taxation, 423-25 

Social dividend theory of taxa- 
tion, 424 

Soil, the, a fund for the endow- 
ment of the human race, 31 

Soldiers, their services economic 
in England, non-economic in 
Germany, 4 

Solidarity of the family, as re- 
lated to natural selection, 320- 
21 

Specie reserve of bank money. 
[See Reserve] 

Speculation, the course of, 192-4; 
the speculating class and their 
gains, 297 

Standard of deferred payments, 
usually called standard of 



value, 144-51 ; how about 
paper money? 170 ; how about 
bi-metallic money ? 403. [See 
also Multiple Standard.] 

Stipend class, its relations to the 
wages class, 295 

Stock, influence of a stock of a 
commodity on its price, 101-2 

Storage, necessity of, as affecting 
price, 105 

Strikes, their relation to the doc- / 
trine of laissez-faire, 286, 289, 
371-74 ; co-operation would 
abolish strikes, 365 

Structure in industry, 72-78 

Subsistence : provided by capital, 
65 ; in its relation to popula- 
tion. Chaps. 1-3, Part V 

Substitution of one commodity / 
for another in use, as affecting 
price, 104 

Successions, limitations upon and 
taxation of, 415 

Supply and demand, 93 

Supply is not equivalent to stock, 
102 

Survival of the fittest, how far *^ 
carried out in the human fam- 
ily, 320-1 

Sympathy with labor. [See Opin- 
ion, Public] 

Tabular standard, for deferred 
payments. [See Multiple 
Standard] 

Taxation, its place in political -^ 
economy, 292-4 ; McCui- 
loch's view of taxation as stim- 
ulating production, 334 ; the 
principles of, 422-46. [See, 
also, Quasi Taxes; see, also, 
Revenue of the State] 

Territorial division of labor, its 
advantages, 55 ; the protec- 
tionist argument for limiting 
it, 450-453 

Titles, sale of, 416 

Time-value, 22 

Tobacco monopoly, as a source 
of revenue, 419 

Tooke, Thomas • the theory of 
bank money, 184 



INDEX. 



415 



y 



Tools, the second form of capital, 
68 

Trades Unions, 370-76 

Transportation, in its relation to 
rent, 217 ; in its relation to 
prices, 136 

Tributes from colonies, depen- 
dencies and conquered nations, 
416 

Truck, 262 

Under-production, what it results 
from, 340 

Under-consumption, so-called, 
339 

Unearned increment of land. 
[See Increment, etc.] 

United States : the laboring 

population well fed and well 

sheltered, 46 ; capable of 

^ using delicate and intricate 

machinery, 48; bank money, 

181-5; "no-rent" lands, 

221 ; rents, 224, 229 ; increase 

-'^ of population, 331 ; usury 

laws, 350 ; wages, compared 

>^ with those of England, 453- 

61 ; management of public 

lands, 417 ; considered with 

reference to the question of 

"'' protection, 453 

Usury and usury laws, 349-54. 
[See Interest, Chap. 3, Part IV 

Utility, how related to value, 86; 
useful, ineconomics, does not 
mean beneficial, 87 

Utility, final. [See Final Utility] 

Value : related to wealth as at- 
tribute to substance, 3 ; de- 
fined, ihid. ; relation to price, 
85, 133 ; to utility, 8G ; how 
related to labor, 88-91 ; value 
is governed by the relation of 
demand and supply, 93 ; the 
value of money, 129-179 

Value, denominator. [See De- 
nominator of Values] 



Voluntary contributions. [See 
Contributions.] 

Wages: as a share of the product 
of industry, 209 ; are not di- 
minished by the sums received 
by the landlord class as rent 
221 ; or by the sums received 
by the employing class as prof- 
its, 260 ; the law of wages, 
Chap. 5, Part IV ; wages'in- 
fluencei by public opinion, 
287; recapitulation of views- 
regarding wages, 289 ; wages, 
how influenced by poor relief, 
408-13 ; why wages are high 
in new countries, 455-61 

Waste of materials (avoidable) an 
important element in produc- 
tion, 47 

Waste of soil : its relation to rent, 
213 

Water privileges, rent of, 230 

Wealth : the subject matter of 
political economy 1 ; defini- 
tion, 3 ; as the subject matter 
of taxation, 427. [See, also. 
Capital] 

Weathering, so-called, as a means 
of renewing the soil subject to 
culture, 35 

Welfare, human, not the subject 
matter of political economy, 5 

Whately, Richard : popular prej- 
udices aroused by political 
economy, 17 ; substitutes the 
term catallactics for political 
economy, 19 ; employer's pro- 
fits a species of the same genus 
as rent, 254 

Wife, the, relation to the subsist- 
ence of the family, 316 

Workhouse test of pauperism, 
409-13 



Young, Arthur : expenditure as 
the basis of taxation, 429 



^ 



fa UZ 



m 



ii 



